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HomeMy WebLinkAboutFIN 02-15 City 00 i Report to -� - = Executive & Committee PI KERING Report Number: FIN 02-15 Date: January 12, 2015 From: Paul Bigioni Director, Corporate Services & City Solicitor Subject: 2014 Year End Audit Recommendation: 1. That Report FIN 02-15 of the Director, Corporate Services & City Solicitor be received; 2. That the Audit Plan as submitted by Deloitte LLP, included as Attachment 1 to this report be received for information; and, 3. That the Chief Administrative Officer and the Division Head, Finance & Treasurer be authorized to sign the Auditor's Engagement Letter on behalf of the City. Executive Summary: In accordance with generally accepted auditing standards, the Audit Plan is prepared to communicate the auditor's approach and reporting responsibilities to the Executive Committee, who has oversight responsibility for the financial reporting process. This plan is submitted prior to the commencement of the year end audit. Financial Implications: The base audit fee, for City & Library, of$68,600 remains the same as the prior year. Sufficient provision is available in the budget. Discussion: In the Committee's role as the body responsible for oversight of the financial reporting process, the Committee is to review the Audit Plan for the 2014 year end audit. The Audit Plan includes the scope of the audit services to be provided, the auditor's reporting responsibilities and an outline of the audit approach. It is included as Attachment 1 to this report. At the Council meeting of June 13, 2011, Resolution 122/11 appointed Deloitte LLP as the City's external auditors for a period of 5 years from and including 2011-2015. However, Deloitte LLP requires an annual Engagement Letter to be executed prior to each audit which summarizes their role as external auditor, management's 4 Report FIN-02-15 January 12, 2015 Subject: 2014 Year End Audit Page 2 responsibilities and the estimate of the audit fees. The Engagement Letter is included as Attachment 2 to this report. Attachments: 1. Audit Plan 2. Engagement Letter Prepared By: Approved/Endorsed By: Kristine Senior Stan Karwowski Manager, Accounting Services Divisio .ead, Finance &Treasurer Paul Bigio Director, o po te Services & City Solicitor Recommended for the consideration of Pickering City Council (7, 2o(4- Tony Prevedel, P.Eng. Chief Administrative Officer • 5 ATTACHMENT#,_, ..__TO REPORT# rlti oa- i 5 Deloltte. The Corporation of the City of Pickering 2014 Audit service p lan 1nsl1IFng To be presented-to esented 10 the Executive Committee confidence January 12, 2015 6 Deloitte. Deloitte LLP 5140 Yonge Street Suite 1700 Toronto ON M2N 6L7 Canada Tel:416-601-6150 Fax:416-601-6151 www.deloitte.ca December 17, 2014 • Private and confidential To the Members of the Executive Committee of The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Dear Executive Committee Members: 2014 Audit service plan We are pleased to present our 2014 audit service plan for The Corporation of the City of Pickering("the City"),which describes our audit scope and strategy, our audit approach and our planned communications with you. Our audit will include: • An audit of the City of Pickering's consolidated financial statements(the"Financial Statements")for . the year ending December 31,2014 prepared in accordance with Canadian Public Sector Accounting Standards("PSAS"); • An audit of the City of Pickering Public Library Board's financial statements for the year ending December 31,2014 prepared in accordance with Canadian PSAS;and • An audit of the Trust Funds of the City of Pickering's financial statements for the year ending December 31,2014 prepared in accordance with Canadian Accounting Standards for Not-for-Profit Organizations. We are providing this audit service plan to the Executive Committee("the Committee")on a confidential basis.It is intended solely for the use of the Committee and the Board of Directors to assist you in discharging your responsibilities with respect to the Financial Statements and is not intended for any other purpose.Accordingly,we disclaim any responsibility to any other party who may rely on it. We look forward to discussing our audit service plan with you and answering any questions you may have. Yours truly, LLP Chartered Professional Accountants,Chartered Accountants Licensed Public Accountants • 7 Table of Contents At a glance 1 Risk assessment 3 Audit scope 6 Appendices Appendix 1 —The Deloitte risk-based audit approach Appendix 2—Communication requirements Appendix 3—The Deloitte client service commitment • 8 ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan i At a glance As your auditor, we understand that you require Deloitte to perform a high-quality, proactive audit that is delivered with integrity, objectivity and independence. Our audit addresses financial statement risks through targeted procedures that are responsive to the nature of these risks, including changes in the City and the business environment. Our procedures include identifying and analyzing issues and facts relevant to our audit conclusions and providing objective challenges to management's judgments and assumptions. Our audit approach involves consideration of the following: Audit scope and terms The audit service plan considers several factors which are discussed in detail in the of engagement body of the report including: • Risk assessment • Internal control matters • Use of the work of experts The terms and conditions of our engagement are included in the engagement letter, which is to be signed on behalf of Council and management. Independence We have developed important safeguards and procedures to protect our independence and objectivity. If,during the year,we identify a breach of independence,we will communicate it to you in writing.Our communication will describe the significance of the breach,including its nature and duration,the action taken or proposed to be taken,and our conclusion as to whether or not the action will satisfactorily address the consequences of the breach and have any impact on our ability to serve as independent auditors to the City. We are independent of the City and we will reconfirm our independence in our final report to the Committee. Materiality We are responsible for providing reasonable assurance that your Financial Statements as a whole are free from material misstatement. Materiality levels will be determined as follows: • Consolidated financial statements for the City-approximately 2.5%of budgeted expenses; • City of Pickering Public Library Board-approximately 3%of budgeted expenses; • City of Pickering Trust Funds-approximately 3%of fund balances. We will report to the Committee all uncorrected misstatements greater than a clearly trivial amount(5%of materiality)and any misstatements that are, in our judgment, qualitatively material. In accordance with Canadian Generally Accepted Auditing Standards(GAAS),we will request that misstatements, if any, be corrected. Audit risks We have identified the following areas of significant risk for our 2014 audit. • Revenue recognition • Accounting estimates(assessed based on significance of estimate) • Management override of controls See the Risk assessment section for further discussion of identified risks of material misstatement and related audit responses. ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 1 9 Group Audit When designing our audit strategy,we also consider: • The financial significance or relative importance of the consolidated entities or any government business enterprises accounted for on a modified equity basis; • The complexity and nature of the operations, internal controls and accounting issues at each consolidated entity;and • The degree of centralization or decentralization of processes and controls. • We intend to use the work of the auditor of Veridian Corporation (Veridian)in our testing of the City's investment in Veridian.We will complete all required communications with the component auditor,ensure that the accounting for the City's share of Veridian's net income is appropriate and ensure the disclosures in the Financial Statements is adequate. Audit team The roles and responsibilities of the individuals who lead our audit team are: Paula Jesty Engagement.Partner 416-643-8787 pjesty @deloitte.ca Andrew Mifsud Manager 416-601-4674 amifsud @deloitte.ca Elena Stepanov Senior 416-874-3692 estepanov @deloitte.ca Complete engagement Upon the satisfactory completion of our audit, including the receipt of written reporting representations from management,we will provide you with an audit report on your Financial Statements. We will also issue other reports to assist you in fulfilling your responsibilities,as required by applicable auditing standards.Appendix 2 summarizes the required communications between Deloitte and the Committee. 1 0 ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 2 Risk assessment We compile information from a variety of sources, including discussions with management and the Committee, to identify risks to the City's financial reporting process that may require attention. Our preliminary risk assessment took into account: • Key business developments and transactions(internal and external) • Current business, regulatory and accounting pronouncements and developments • Key management strategies and business plans • Prior years' audit results • Results of procedures relating to internal control, and • Areas of significant judgment and risk Our audit planning activities and our preliminary identification of audit risks enables us to set the scope of our audit and to design audit procedures tailored to the identified risks to financial reporting. The table below sets out significant risks to financial reporting that we identified during our preliminary planning activities. The table also includes our proposed response to each risk. Our planned audit response is based on our assessment of the likelihood of a risk's occurrence, the significance should a misstatement occur, our determination of materiality and our prior knowledge of the City. • The results of our audit planning and risk assessment drive the scope and timing of the audit procedures. ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 3 Areas of significant risk for 2014 Revenue recognition Audit risk Assurance standards include the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue). Our proposed audit • Significant revenue streams are a presumed area of audit risk.We will test the design response and implementation of controls in these revenue streams and perform substantive analytic procedures and detailed testing in these areas. • Substantive testing to determine if restricted grants/contributions(i.e.,development charges,gas tax,etc.)and government transfers have been recognized as revenue in the appropriate period. Risk of management override of controls Audit risk 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 proposed In testing for management override of controls we will: audit response • engage in periodic fraud discussions with certain members of senior management,internal counsel and others • consider the potential for bias in judgments and estimates, including performing retrospective analysis of significant accounting estimates • evaluate the business rationale for any significant unusual transactions • evaluate the City's fraud risk assessment and consider entity-level internal controls and internal controls over the closing and reporting process • test journal entries that exhibit characteristics of possible management override of controls,identified using manual techniques. Accounting estimates Audit risk Estimates require management judgments(i.e., allowance for significant property tax appeals,contingent liabilities,estimated accrued liabilities,etc.) Our proposed • Obtain documentation on management's controls over the development of accounting audit response estimates for any significant management estimates and assess risk • Focused review of calculations and support • Discussions with management • Analytic review of related accounts • • Assess outcome of retrospective review of estimates from prior years As we perform our audit procedures, we will separately communicate any significant changes to the significant risks listed above and the reasons for such changes. III it 12 Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 4 Consideration of fraud Misstatements in the financial statements can arise from either fraud or error. The distinguishing factor between fraud and error is whether the underlying action that results in the misstatement of the financial statements is intentional or unintentional. The following table explains our respective responsibilities towards fraud. Your responsibilities Our responsibilities • The primary responsibility for the prevention and • We are required to obtain representations from detection of fraud rests with management(with management regarding internal controls,assessment oversight from the Committee), including the of risk and any known or suspected fraud responsibility for establishing and maintaining or misstatement. internal controls over the reliability of financial • As independent auditors,we will obtain reasonable, reporting,ensuring the effectiveness and but not absolute,assurance that the financial efficiency of operations,the identification of fraud statements as a whole are free from material risks and compliance with applicable laws misstatement,whether caused by fraud or error. and regulations In determining our audit strategy to address the assessed risks of material misstatement due to fraud, we will: • Assign and supervise personnel, taking into account the knowledge, skill and ability of individuals with significant engagement responsibilities and our assessment of the risks of material misstatement due to fraud for the engagement. • Evaluate whether the City's selection and application of accounting policies, particularly those related to subjective measurements and complex transactions, may be indicative of fraudulent financial reporting resulting from managements effort to manage results. • Incorporate an element of unpredictability when selecting the nature, timing and extent of our audit procedures. We will inquire directly of the Committee regarding: • Its views about the risk of fraud, • Whether it has knowledge of any actual or suspected fraud affecting the city and . • The role it exercises in the oversight of fraud risk assessment and the establishment of mitigating controls. We will also inquire if the Committee is aware of tips or complaints regarding the City's financial reporting and, if so, the committee's responses to such tips and complaints. If we suspect fraud involving management,we will communicate these suspicions to the Committee and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 5 1 3 Audit scope Designed to obtain reasonable assurance and address the risks of material misstatements An audit is designed to search for potential misstatements that, individually or collectively, are material. This is done by determining a specific threshold for each engagement and considering other qualitative factors. The threshold amount is also used to evaluate the significance of uncorrected misstatements that are noted during the audit. The audit enables us to express an opinion on whether the Financial Statements are fairly presented, in all material respects, in accordance with PSAS. The audit also includes evaluating the appropriateness of accounting policies and the reasonableness of accounting estimates made by management, and evaluating the overall presentation of the Financial Statements:Our report on the Financial Statements and communications required by Canadian generally accepted auditing standards (Canadian GAAS)will be in accordance with our findings. An audit is designed to search for potential misstatements that, individually or collectively, are material. Some of the factors we consider in determining the audit scope include: • The existence of significant risks • A consideration of significant accounts and disclosures using materiality levels that are appropriate to support our audit opinion on your Financial Statements • The complexity and nature of the operations, internal controls and accounting issues • The degree of centralization or decentralization of processes and controls, including the extent of relevant enterprise-level controls, and • The extent and nature of internal control deficiencies and financial statement misstatements identified in current and previous periods. Based on our analysis of these risks, we have determined the scope of work we consider necessary to provide an appropriate basis for our audit opinion on the Financial Statements. Internal control matters We will inform the Committee and management of any significant d eficiencies that are identified in the course of conducting the audit. Reliance on service organizations The City employs ADP Canada Co. ("ADP")for payroll-related services.We intend to rely on reports issued by ADP Canada's external auditors. As part of our assessment, we will consider the City's internal controls related to the information provided by these organizations. If our assessment of these reports does not provide us with sufficient appropriate audit evidence, we will be required to perform additional audit procedures to address the risks of material misstatements in the Financial Statements. 1 4 ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 6 • Use of Specialists We intend to use the work of the City's actuary in their determination of the City's post employment and workers' compensation benefits.We will review and test any data and assumptions used, ensure the disclosure in the financial statements is adequate and the actuary is in good standing with the Canadian Institute of Actuaries. Audit scope uncertainty Our audit service plan is based on several assumptions. Circumstances may arise during the engagement that could significantly affect the scope and the extent and timing of our audit procedures. . These circumstances may include, but are not limited to: • A deterioration in the quality of the City's accounting records during the current year engagement compared to the prior-year engagement • The identification of significant deficiencies in the City's internal control that result in the expansion of our audit procedures • The identification, during our audit, of a significant level of proposed audit adjustments • The occurrence of significant new issues or changes, such as: — New accounting issues — Changes in accounting policies or practices from those used in prior years — Events or transactions not contemplated in our budget — Changes in the City's financial reporting process or IT systems — Changes in the City's accounting personnel, their responsibilities, or their availability — Changes in auditing standards — Changes in the City's use of experts or the specialists and/or their work product does not meet the qualifications that Canadian GAAS require for us to be able to use their work • Changes in the audit scope caused by events that are beyond our control. If any of these or similar such circumstances arise during the course of our audit we will discuss them on a timely basis with management and provide the Committee with a report regarding the impact on our audit at its next scheduled meeting. Matters that we consider to be significant and that may be sensitive from a reporting timing perspective will be communicated immediately to the Committee. • ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 7 1 5 • Appendix 1 — The Deloitte risk-based audit approach• • A consistent approach that supports a dynamic environment Deloitte's audit approach is a systematic methodology that enables us to tailor our audit scope and plan to address the unique issues facing the City. Our tailor audit approach _____________ �.- Weil a xmmereert t smile en ._.r` oncomprona4gy nigt to et of pr ot-..ssanai. wx}' r'c. ar4s-f. L / and teChni�IWa�y , Driven.cy our partne a e1C.iiente and , th&detain knowledge of an ,_ organi=a`ipa rvdh signficantpathier nnut al al stapes of the aUfdsl . :_ '--..DEvalopingand ' _--- . aryd . iagentatiigpe 17 T' .iissessing iol:- -(tidal . ni rtskcfsna ] rnisrst ry -- Tainted m respond to Fix�t f - cSan imp'cecurrstancee "9y idendlyirg and design'srg appropriate eu^_a procedures Bmt:0mson rsts to the soda .process forsgnifcan:achunts,tansedirns and discbsures as well as malaria! adssiaierrertis'a the rnencaIetatementh These steps are not necessarily sequential nor are they mutually exclusive. For example, once we've developed our audit plan and the audit is being performed,we may become aware of a risk that was not identified during the planning phase. Based on that new information, we would reassess our planning • activities and adjust the audit plan accordingly. 1 6 ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan • 1. Initial planning Understanding your business and accounting processes Our audit will take into account specific items of particular interest raised by the Committee as well as areas of concern identified by the Committee or management. 2. Assessing and responding to engagement risk Our audit approach combines an ongoing identification of risks with the flexibility to adjust our approach when additional risks are identified. Since these risks may impact our audit objectives, we consider materiality in our planning to focus on those risks that could be significant to your financial reporting. Risk assessment The risks that we have identified to date, and which will be addressed when conducting the audit, are summarized in the Risk Assessment section. As we perform our audit, we will update our risk assessment and will inform the Committee and management of any significant changes to our risk assessment and any additional risks that are identified. Consideration of the risk of fraud Fraudulent acts include the deliberate failure to record transactions, forgery of records and documents, and intentional misrepresentations made to our audit engagement team. Fraud may include intentional acts by management or employees acting on behalf of the City, as well as employee fraud if management or employees are involved in actions that defraud the City. Deloitte does not assume that management is dishonest nor do we assume unquestioned honesty. Rather, in accordance with Canadian GAAS, we exercise professional skepticism and recognize that the conditions we observe and evidential matter we obtain, including that obtained from prior audit engagements, need to be objectively evaluated to determine whether the Financial Statements are presented fairly in all material respects. Maintaining an attitude of professional skepticism means that we carefully consider the reasonableness of the responses we receive to our inquiries from those charged with governance, and evaluate other information obtained from them in light of the evidence we obtain during the audit. When we identify a misstatement or control deficiency, we consider whether it may be indicative of fraud and what the implications of fraud and significant error are in relation to other aspects of the audit, particularly the reliability of management representations. Because of the inherent limitations of internal control over financial reporting (ICFR), including the possibility of collusion or improper management override of controls, it is possible that material misstatements due to error or fraud may not be prevented or detected on a timely basis.Accordingly, the assurance an auditor provides concerning the lack of misstatements arising from fraud is necessarily lower than the assurance provided concerning those arising from an error. Information technology An important part of our audit planning process involves gaining an understanding of: • The importance of the computer environment relative to the risks to financial reporting • The way in which that environment supports the control procedures we intend to rely on when conducting our audit, and • The computer-based information that supports our substantive procedures. The objective of our review of computer controls is to identify potential areas of risk and assess the relevance, reliability, accuracy and completeness of the data produced by the systems. To accomplish this, we gain an up-to-date understanding of your organization's computer processing environment and ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 1 7 our understanding of the relevant general computer controls. We then test the design and implementation of controls considered relevant to the audit. We will assess the design and implementation of general computer controls in the following areas: • Data centre and network operations • System software acquisition, change and maintenance • Program change • Access security, and • Application system acquisition, development, and maintenance. This testing is performed on a rotational basis. 3. Developing and executing the audit plan The performance of an audit includes evaluating the design and determining the implementation of internal controls relevant to the audit, testing the operational effectiveness of the controls we intend to rely on, and performing substantive audit procedures. Audit procedures The timing of our audit procedures is dependent upon a number of factors including the need to coordinate with management for the provision of supporting analysis and other documentation. Generally, we perform our audit procedures to allow us sufficient time to identify significant issues early, thereby allowing more time for analysis and resolution. For example, we anticipate performing audit procedures on account balances and disclosures involving significant and complex transactions, or adoption of new accounting pronouncements, as they occur. Tests of controls As part of our audit, we will review and evaluate certain aspects of the systems of Internal Control over Financial Reporting to the extent we consider necessary in accordance with Canadian GAAS. The main objective of our review is to enable us to determine the nature, extent and timing of our audit tests and establish the degree of reliance that we can place on selected controls. An audit of the financial statements is not designed to determine whether internal controls were adequate for management's purposes or to provide assurance on the design or operational effectiveness of internal control over financial reporting. The extent to which deficiencies in internal control may be identified through an audit of financial statements is influenced by a variety of factors including our assessment of materiality, our preliminary assessment of the risks of material misstatement, our audit approach, and the nature, timing and extent of the auditing procedures that we conduct. Accordingly, we gain only a limited understanding of controls as a result of the procedures that we conduct during an audit of financial statements. We will inform the Committee and management of any significant deficiencies that are identified in the course of conducting the audit. Substantive audit procedures Our substantive audit procedures consist of a tailored combination of analytical procedures and detailed tests of transactions and balances. These procedures take into account the results of our controls tests and are designed to enable us to obtain reasonable assurance that the Financial Statements are free from material misstatements. To obtain this assurance, misstatements that we identify while performing substantive auditing procedures will be considered in relation to the Financial Statements as a whole. Any misstatements that we identify, other than those that are clearly trivial (the threshold has been set at 5% of materiality), will be reported to management and the Committee. In accordance with Canadian GAAS, we will request that misstatements be corrected. 1 8 ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan • 4. Reporting and assessing performance Perform post-engagement activities We will analyze the results of the audit procedures performed throughout the year and, prior to rendering our report, we will conclude whether: • The scope of the audit was sufficient to support our opinion • The misstatements identified during the audit do not result in financial statements being materially misstated. Complete engagement reporting After the satisfactory completion of appropriate audit Deloitte enjoys a solid reputation for procedures, we will provide an audit report on your our commitment to quality. Key Financial Statements. factors supporting that reputation include: We also provide reports to the Committee to assist it in fulfilling its responsibilities as required by applicable • A strong tone at the top auditing standards. Appendix 2 summarizes the required • A comprehensive ethics and communications between Deloitte and the Committee. compliance program • An uncompromising approach to Deloitte's client service principles include providing quality in client service management and the Committee with insights into the • Communication of and adherence to condition of the business and offering meaningful professional standards and client suggestions for improvement. We will report these insights service principles and suggestions to the appropriate members of • A mature client feedback program management and/or the Committee for their consideration. • A multifaceted approach to monitoring independence To enable us to determine how well we have achieved our • A robust technical consultation client service objectives, including an assessment of the approach quality of our audit engagement, we actively solicit • National office consultation on areas feedback from our clients. This feedback will be obtained of high risk or that require significant either through meetings with members of the Committee' judgment and management or their completion of questionnaires. • Technical training for our • professionals Your feedback enhances our understanding of your • An annual internal inspection expectations of us through your evaluation of our process for audit engagements, performance. The information you provide helps us refine • Continuous improvement based on our client service objectives to ensure that we remain lessons leamed and client feedback. focused, responsive and proactive in meeting your needs while fulfilling our professional responsibilities. • ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 19 Appendix 2 — Communication requirements Required communication 1. Fraud or possible fraud identified through the audit process 2. Our responsibilities under Canadian GAAS 3. An overview of the overall audit strategy,addressing: • Timing of the audit • Significant risks,including fraud risks • Nature and extent of specialized skill or knowledge needed to perform the planned audit procedures related to significant risk 4. Significant accounting policies, practices,unusual transactions,and our related conclusions • Alternative treatments for accounting policies and practices that have been discussed with management during the current audit period 5. Our responsibility for other information in documents containing audited Financial Statements,any procedures performed,and the results 6. Consultation outside the engagement team regarding difficult or contentious matters that we believe are relevant to the audit committee's oversight 7. Matters related to going concern 8. Management judgments and accounting estimates, 9. Significant transactions outside of the normal course of business, including related party transactions 10.Significant difficulties,if any,encountered dealing with management related to the performance of the audit, 11.Material written communications between management and us, including management representation letters 12.Other matters that are significant to the oversight of the financial reporting process 13.All relationships between the City and us that, in our professional judgment, may reasonably be thought to bear on independence 14.A statement that, in our judgment,the engagement team and others in our firm and,when applicable, network firms have complied with relevant ethical requirements regarding independence 15.Modifications to our opinion(s) 16.Our views of significant accounting or auditing matters for which management consulted with other accountants and about which we have concerns 17.Major issues discussed with management prior to our retention 18.Illegal or possibly illegal acts that come to our attention 19.Significant deficiencies in internal control,if any,identified by us in the conduct of the audit of the financial statements 20.Uncorrected misstatements and disclosure items 21.Breach of independence 20 Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan Appendix 3 — The Deloitte client service commitment • Our approach to client service excellence At Deloitte, our objective is to execute our audit in a way that meets our professional standards and also creates a positive client experience. Our client service principles provide the framework for guiding and coaching members of our engagement team, and identifying our clients' unique preferences regarding the ways they want to work with us. These principles enable our engagement teams to focus on client service excellence. Our client service principles We will: ✓ make and meet our commitments to you by... • Working with you to clearly define your expectations . • Delivering what is agreed upon • Being easily accessible to you • Providing valuable responses to all your inquiries • Ensuring timeliness and accuracy in our billings ✓ understand your business and what is important to you by... • Anticipating your needs • Understanding the unique characteristics of your business industry and operating circumstances ✓ provide value and build trust through technical competence and consistent results by... • Instilling confidence and trust in the quality of our work • Providing you with up-to-date professional expertise • Providing value to your enterprise • Providing insights into the condition of the business and meaningful suggestions for improvement ✓ demonstrate professionalism through effective interaction and communications by... • Keeping you informed of project status • Performing as a well organized team • Working collaboratively with you ✓ provide a no surprises experience by... • Proactively addressing issues • Providing timely communication of changes to fees • Effectively managing changes to the service team At the conclusion of our audit, or at any time during the engagement,we invite'you to assess our performance against these principles through our client feedback process. ©Deloitte LLP and affiliated entities. The Corporation of the City of Pickering—2014 Audit Service Plan 21 • • • ` 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. 22 ©Deloitte LLP and affiliated entities. ATTACHMENT# c2 TO REPORT# ►rLD,:)-- I Deloittea Deloitte LLP 5140 Yonge Street Suite 1700 Toronto ON M2N 6L7 Canada Tel:416-601-6150 Fax:416-601-6151 www.deloitte.ca November 3,2014 Private and confidential Mr.Tony Prevedel Chief Administrative Officer • The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Mr. Stan Karwowski Division Head,Finance and Treasurer The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Dear Mr.Prevedel and Mr.Karwowski: You have requested that Deloitte LLP("Deloitte"or"we"or"us")audit the consolidated financial statements(the"Financial Statements")of The Corporation of the City of Pickering(the"the City")as at and for the year ending December 31,2014.In addition,we will perform a financial statement audit of the City of Pickering Public Library Board and of the City of Pickering Trust Funds.Ms. Paula Jesty will be responsible for the services that we perform for the City. We are pleased to confirm our acceptance and our understanding of this engagement by means of this letter. Deloitte and the City agree that the executed engagement letter dated October 22,2012 as well as its accompanying appendices(collectively,the"Prior Engagement Letter")apply to the services under this engagement for the year ending December 31,2014 and that the provisions of the Prior Engagement Letter,except for the General business terms attached thereto, are hereby incorporated by reference into this letter. We estimate that our total fees for this audit will be $63,000 for the City Consolidated Financial Statements and$5,600 for the Library Board, plus reasonable expenses and applicable taxes(such as Harmonized Sales Tax). These fees are based upon our understanding of the unchanged engagement scope outlined within the Prior Engagement Letter.All invoices shall be due and payable when rendered. 23 The Corporation of the City of Pickering November 3,2014 Page 2 Please sign and return the attached copy of this letter to indicate your acknowledgement that it is in accordance with your understanding of the arrangements for our audit of the Financial Statements for the year ending December 31,2014. Yours truly, Chartered Professional Accountants,Chartered Accountants Licensed Public Accountants Enclosure The services and terms set forth in and incorporated into this contract are accepted and agreed to'by The Corporation of the City of Pickering: Signature Signature Title Title • Date Date 24 Appendix A General business terms The Corporation of the City of Pickering December 31,2014 The following general business terms(the"Terms")apply to the engagement except as otherwise provided in the specific engagement letter agreement(the"engagement letter")between Deloitte LLP ("Deloitte")and The Corporation of the City of Pickering(the"City")to which these Terms are attached. 1. Timely performance-Deloitte will not be liable for failures or delays in performance that arise from causes beyond Deloitte's control,including the untimely performance by the City of its obligations as set out in the engagement letter. 2. Right to terminate services-If the City terminates the engagement or requests that Deloitte resign from the engagement prior to its completion,the City will pay for time and expenses incurred by Deloitte up to the termination or resignation date together with reasonable time and expenses incurred to bring the services to a close in a prompt and orderly manner.Deloitte will not be responsible for any loss,cost or expense resulting from such termination or resignation. Should the City not fulfill its obligations set out herein or in the engagement letter,and in the absence of rectification by the City within thirty(30)days of notification in writing by Deloitte,upon written notification Deloitte may terminate its services immediately and will not be responsible for any loss,cost or expense resulting from such early termination. 3. Fees and taxes-Any fee estimates take into account the agreed-upon level of preparation and assistance from City personnel.Deloitte undertakes to advise management of the City on a timely basis should this preparation and assistance not be provided or should any other circumstances arise which cause actual time to exceed that estimate.The City is responsible for the payment of any applicable federal,provincial or other goods and services or sales taxes, or any other taxes or duties, in connection with the services provided by Deloitte. 4. Expenses-In addition to professional fees,the City will reimburse Deloitte for its reasonable out-of- pocket expenses including travel,meals and hotels incurred in connection with this engagement. 5. Billing-Invoices will be rendered periodically as agreed in advance.All invoices shall be due and payable when rendered.Interest shall be calculated at a simple daily rate of 0.0493%(equivalent to 18%per annum). Interest shall be charged and payable at this rate on any part of an invoice which remains unpaid from thirty(30)days after the invoice date to the date on which the outstanding invoice is paid. To the extent that as part of the services to be performed by Deloitte as described in the engagement letter,Deloitte personnel are required to perform the services in the United States of America("U.S.Business"),the City and Deloitte agree to assign performance of the U.S.Business to Deloitte Canada LLP;an affiliate of Deloitte.All services performed by Deloitte Canada LLP shall be performed under the direction of Deloitte which shall remain responsible to the City for such services. Deloitte Canada LLP shall invoice the City with respect to the U.S.Business and Deloitte will invoice for services performed in Canada("Canadian Business"). Payment for U.S.Business and/or Canadian Business can be settled with one payment to Deloitte. 6. Governing law-The engagement will be governed by the laws of the Province where Deloitte's principal office performing the engagement is located and all disputes related to the engagement shall be subject to the exclusive jurisdiction of the courts of such Province. 7. Working papers-All working papers, files and other internal materials created or produced by Deloitte related to the engagement are the property of Deloitte. In the event that Deloitte is requested by the City or required by subpoena or other legal or regulatory process to produce its files related to this engagement in proceedings to which Deloitte is not a party,the City will reimburse Deloitte for its professional time and expenses,including legal fees, incurred in dealing with such matters. 25 Appendix A Page A-2 8. Privacy-Deloitte and the City acknowledge and agree that,during the course of this engagement, Deloitte may collect personal information about identifiable individuals("Personal Information"), either from the City or from third parties.Deloitte's services are provided on the basis that the City has obtained any required consents for collection,use and disclosure to us of Personal Information required under applicable privacy legislation.The City and Deloitte agree that Deloitte will collect, use and disclose Personal Information on behalf of the City solely for purposes related to completing this engagement,related engagements,or providing services to the City and Deloitte shall not collect, use and disclose such Personal Information for Deloitte's own behalf or for its own purposes. 9. Third parties-Deloitte's engagement is not planned or conducted in contemplation of or for the purpose of reliance by any third party(other than the City and any party to whom Deloitte's audit report is addressed)or with respect to any specific transaction. Therefore, items of possible interest to a third party will not be addressed and matters may exist that would be assessed differently by a third party,possibly in connection with a specific transaction. 10. Confidentiality-To the extent that,in connection with this engagement,Deloitte comes into possession of Personal Information or any proprietary or confidential information of the City (collectively,"Confidential Information"),Deloitte will not disclose such information to any third party without the City's consent,except: (a) as may be required or permitted by legal authority,the rules of professional conduct/code of ethics; (b) to Deloitte Entities(as such term is defined below),component auditors and permitted subcontractors; or (c) to the extent that such information shall have otherwise become publicly available. Except as instructed otherwise in writing,each party may assume that the other approves of properly addressed fax,e-mail(including e-mail exchanged via internet media)and voice mail communication of both sensitive and non-sensitive information and other communications concerning this engagement,as well as other means of communication used or accepted by the other. 11. Assignment-Except as provided below in paragraph 12,no party may assign,transfer, or delegate any of its rights or obligations relating to this engagement without the prior written consent of the other parties. 12. Subcontracting-Deloitte may use the services of any of its affiliates or any member firm of Deloitte Touche Tohmatsu Limited("DTTL")and its respective subsidiaries and affiliates,including those operating outside Canada("Deloitte Entities"),component auditors or,with the consent of the City,of any other party.Deloitte remains responsible to the City for services performed by Deloitte Entities under this engagement.Each member firm of DTTL is a separate and independent legal entity operating under the names"Deloitte","Deloitte&Touche","Deloitte Touche Tohmatsu"or other related names; and services are provided by member firms or their subsidiaries or affiliates and not by D'1°l'L. 13. Survival of terms-The agreements and undertakings of the City contained in the engagement letter, together with the appendices to the engagement letter including these Terms,will survive the completion or termination of this engagement. • 14. Proportionate liability-The City and Deloitte acknowledge where the audit is conducted pursuant to a statute governing the City that contains proportionate liability provisions that apply to an auditor, such as the Canada Business Corporations Act,the terms of the statute shall apply to this engagement. In the event that the City and Deloitte are not subject to such statutory provisions regarding proportionate liability,the City agrees that in any action,claim, loss or damage arising out of the engagement,Deloitte's liability will be several and not joint and several and the City may only claim payment from Deloitte of Deloitte's proportionate share of the total liability based on the degree of fault of Deloitte as fmally determined by a court of competent jurisdiction. 26 Appendix A Page A-3 15. Client misrepresentation-Deloitte shall not be liable to the City, and the City releases Deloitte, for all liabilities,claims,damages,costs, charges and expenses incurred or suffered by the City related to or in any way associated with the engagement that arise from or are based on any deliberate misstatement or omission in any material information or representation provided by or approved by any member of management of the City,officer of the City or member of the board of directors of the City. 16. Qualifications-Notwithstanding anything herein to the contrary,Deloitte may use the name of the City,refer to this engagement and the performance of the services in marketing,publicity materials and other material,as an indication of its experience,and in internal data systems. • 27