HomeMy WebLinkAboutCS 20-05PICKERING
REPORT TO
AUDIT COMMITTEE
Report Number: CS 20-05
Date: February 16, 2005
From:
Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject: 2003 Audit Management Letter- Contract Guarantees
Recommendation:
1. That Report CS
information.
20-05 of the Director, Corporate Services
be received for
Executive Summary: Not applicable
Financial Implications: Not applicable
Background: At the meeting of December 6, 2004 of the Audit Committee when
discussing the 2003 Audit Management Letter it was requested that a report back on
the status of Item la) - Contract Guarantees be provided to the next meeting of the
Committee.
"1. CONTRACTS
a) Guarantees
Observation: (Auditor)
Contracts that the City has entered into may contain guarantees that
could require future payments by the City. New financial statement
disclosure requirements indicate that such guarantees be disclosed in
the notes to the financial statements. It is also good business practice
to monitor any potential contingent payments related to signed
contracts.
Recommendation: (Auditor)
We recommend that a system be set up in order to inventory and
monitor all contracts containing guarantees.
Report CS 20-05 Date:
Subject: 2003 Audit Management Letter - Contract Guarantees
February 16, 2005
Page 2
Mana.qement's Response: (Treasurer)
Management concurs. While many agreements and contracts are on
file in the Clerks or Finance Division or Supply & Services section, a
complete corporate city wide file system needs to be established. This
will be undertaken by the Clerk's Division in 2004.
Afl agreements that are made known to Clerk's are on LaserFiche and
they are indexed. Two issues that remain with respect to agreements
are:
Clerk's needs to ensure that we are indeed receiving all
agreements so that they can be properly tracked with respect to
guarantees, etc.
Need to implement a program in the agreements file in LaserFiche
that will provide for monthly reports on outstanding guarantees,
etc.
We expect that this recommendation will be fully implemented within
the first quarter of 2005. Unfortunately, work on this recommendation
and other records management related issues have been somewhat
delayed mostly because of the by-election and the implementation of
the recommendations from the process reviews into Clerks Division."
Since that meeting the Supervisor, Legislative Services has left the City and the Clerk
has announced his retirement. Therefore, the establishment of a corporate wide
records filing system for such contracts has been delayed.
I am attempting to make some progress on this subject at this time and some of these
agreements are on file in the Corporate Services Department which have been
reviewed and would appear that the notes below as contained in last year's financial
statement will suffice.
1. 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.
(ii)
The City indemnifies employees and elected officials 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
Report CS 20-05 Date:
Subject: 2003 Audit Management Letter- Contract Guarantees
February 16, 2005
Page 3
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.
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 of these 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 a
reasonable estimate of the maximum exposure due to the difficulties in assessing
the amount of liability 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 sheet with respect to
these agreements.
Attachments:
Not applicable
Prepared / Approved / Endorsed By:
Gillis A. Paterson
Director, Corporate Services & Treasurer
GAP:vw
Copy: Chief Administrative Officer
Recommended for the consideratio~,r~f
Pickering City Council
ThO"~'~s-J~ C~inistr~.tive Of~er