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FIN 08-19
QCs. PICKERING Report to Executive Committee Report Number: FIN 08-19 Date: June 17, 2019 From: Stan Karwowski Director, Finance & Treasurer Subject: 2018 Year End Recommendation: 1. That the Report to the Executive Committee on the 2018 audit as submitted by Deloitte LLP (Deloitte) be received for information; 2. That the 2018 draft Audited Consolidated Financial Statements for the City of Pickering be approved; and 3. That Deloitte LLP be reappointed to provide external auditing services to the City of Pickering for a 3 year term. Executive Summary: Attached to this report is the auditor's Report to Executive Committee on the 2018 audit and the draft Audited Consolidated Financial Statements for the year ended December 31, 2018. 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. The auditor did not identify any significant deficiencies during the audit to formally report to Council. Under section 296 of the Municipal Act, 2001, Council must appoint an auditor, licensed under the Public Accounting Act, 2004, for a period not to exceed 5 years. The current auditor, Deloitte, was last appointed in 2016 for a 3 year term. As the term ends with the 2018 year end audit, it is recommended the firm be reappointed for a 3 year term. Financial Implications: The Balance Sheet has net financial assets increasing by approximately $2.1 million which means that the City is capable of meeting its financial commitments. The accumulated surplus increased by $21.6 million over prior year primarily due to an increase in the net book value for tangible capital assets. Again this year, total expenditures came in under budget as staff continue to maintain tight control over their operating budgets. FIN 08-19 June 17, 2019 Subject: 2018 Year End Page 2 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. Overall, the City's financial position is healthy and strong and the City is able to meet its financial commitments. In regards to the reappointment of the auditors, there will be no additional costs beyond the budgeted amount included in the 2019 Current Budget as the auditor has indicated they would be willing to hold their audit fees at the 2018 level for the 3 year term. Discussion: The audit of the consolidated financial statements for the year ended December 31, 2018 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, 2018 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 2018, there is an uncorrected misstatement related to the overstatement of the amortization expense. As part of the implementation of asset management, 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. This has been an ongoing process and as at December 31, 2018 there are still a few asset categories remaining to be completed 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 FIN 08-19 June 17, 2019 Subject: 2018 Year End Page 3 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 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 $15.9 million which is offset by an increase in liabilities of $13.8 million. This resulted in an increase in net financial assets of $2.1 million over the prior year which means the City is able to meet its financial commitments. 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, 2018 gross book value of assets is $492.6 million and, after adjusting for amortization, the net book value of the assets is $259.9 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. FIN 08-19 June 17, 2019 Subject: 2018 Year End Page 4 The budget amount primarily represents development charge (DC) funding of 2018 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 most of the functional areas, which illustrates City staff's commitment to controlling expenditures. However the General Government line shows a significant underage as a result of the timing of budget to actual for the new Financial System. The budget approval was received in 2018 however the implementation is occurring in 2019. 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 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 2018 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 $403.3 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 $259.9 million and the City's equity in Veridian Corporation of approximately $84.6 million. FIN 08-19 June 17, 2019 Subject: 2018 Year End Page 5 The accumulated surplus is comprised of the following: 2018 2017 Operating fund $ 125,247 $ 125,237 Capital fund 20,701,530 25,169,415 Reserves and reserve funds 73,871,965 73,136,645 Equity in Veridian Corporation 84,628,856 81,505,144 Tangible capital assets 259,879,354 240,256,987 Note Receivable 3,530,086 3,796,946 Post employment benefits liability (6,081,194) (5,430,656) WSIB benefit liabilities (1,917,179) (1,862,876) Internal loans (1,986,799) (3,595,241) Net long-term liabilities (29,418,973) (31,412,982) $403,332,893 $381,688,619 Reappointment of Auditors Deloitte was last appointed to conduct the statutory audits for the 2016 to 2018 fiscal years. Experience in the public sector, specifically municipalities, range of other services available and knowledge of the client are important considerations for appointment of an auditor. Deloitte is one of the largest public accounting firms in Canada and has vast experience within the municipal sector. They provide a variety of auditing, accounting and advisory services to a number of municipalities including 6 of the 8 local municipalities and the Regional Municipality of Durham. The services provided by Deloitte have clearly demonstrated proficiency in the municipal environment, particularly Public Sector Accounting Board (PSAB) standards and guidelines. Their comments and assistance is always relevant and practical. Based on experience to date, the firm has provided an excellent level of service at a reasonable cost. Deloitte has agreed to hold their fee at the 2018 level for the full 3 year term. Staff is recommending that Deloitte be reappointed for a 3 year term. Attachments: 1. Auditor's Report to Executive Committee on the 2018 Audit 2. 2018 Draft Audited Consolidated Financial Statements FIN 08-19 June 17, 2019 Subject: 2018 Year End Page 6 Prepared By: Kristine Senior, CPA, CA Manager, Accounting Services Approved/Endorsed By: Stan Karwowski, MBA, CFA, CMA Director, Finance & Treasurer Recommended for the consideration of Pickering City Council Tony Prevedel, P.Eng. Chief Administrative Officer o_3,WMM Deloitte The Corporation of the City of Pickering Report to the Executive Committee on the 2018 Audit June 17, 2019 Deloitte May 29, 2019 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") and the financial statements of related City entities for the 2018 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 September 11, 2018. This report is intended solely for the information and use of the Executive Committee, 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, LLP Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering l 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 9 Appendix 2 - Independence letter 11 Appendix 3 - Draft management representation letter 13 © 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. Audit scope and terms of engagement 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, 2018 (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 and confirmation of changes letter dated August 23, 2018. Audit risks Through our risk assessment process, we have identified the 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 1 Our audits explained Status and outstanding matters We expect to be in a position to render our Independent Auditor's Reports 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. Status and outstanding matters Going concern Going concern Management has completed its assessment of the ability of the City, the Library Board and the Trust Funds 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, the Library Board's or the Trust Funds' ability to continue as a going concern. We agree with management's assessment. 2 Uncorrected misstatements The only misstatement aggregated by us during the current year's audit results from revised estimates related to the useful lives of tangible capital assets. Some capital assets' useful lives were updated, however, some asset classes still made use of old useful life estimates in the determination of current year amortization. This is consistent with our finding in the prior year and the continuation of management's efforts towards updating useful lives of all tangible capital assets. This has resulted in an overstatement of amortization expense and understatement of the net book value of tangible capital assets by approximately $920,133 in the current year ($1.27 million in the prior year). Internal controls Uncorrected misstatements Internal controls 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 Board. As a result of this examination, we did not identify any significant deficiencies in internal control. Uncorrected disclosure misstatements 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 1 Our audits explained Fraud risk 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. Fraud risk Significant accounting practices, judgments and estimates Significant accounting practices, judgments and 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. See pages 6 and 7 for further details. 3 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. Independence Conclusion 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 unmodified Independent Auditor's Reports on the financial statements of the City, Library Board and Trust Funds for the year ended December 31, 2018 once the outstanding items, referred to previously in this report, are completed satisfactorily and the financial statements are approved. © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Areas of audit risk Areas of audit risk Revenue recognition* Audit risk Canadian GAAS includes the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue). Management override of controls* Audit risk Under Canadian GAAS, it is the responsibility of the management, with the oversight of those charged with governance, to place a strong emphasis on fraud prevention and detection. Oversight by those charged with governance includes considering the potential for override of controls or other inappropriate influence over the financial reporting process. Management override of controls is present in all entities. It is a risk of material misstatement resulting from fraud and therefore is considered as a significant risk. Our audit response • Certain revenue streams area 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 • 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, as required by Canadian Auditing Standards. 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 Proposed merger of Veridian Corporation and Whitby Hydro Energy Corporation Audit risk The shareholders of Veridian Corporation and Whitby Hydro Energy Corporation have approved a merger. There is a risk that the status of the merger and the impact is not appropriately disclosed or accounted for in the financial statements. Our audit response • Engage in regular discussions with management to remain abreast of merger status • Review merger agreements, if any, and monitor approval process by the Ontario Energy Board, to ensure disclosures in the financial statements are appropriate and adequate Audit results We noted that the merger was finalized on April 1, 2019 and Veridian Corporation officially amalgamated with Whitby Hydro Energy Corporation to form Elexicon Corporation. This subsequent event has been disclosed in Note 4(f) to the financial statements. 5 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 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 adopted the following accounting standards: • PS 2200 Related party disclosures • PS 3210 Assets • PS 3320 Contingent assets • PS 3380 Contractual rights • PS 3420 Inter -entity transactions The adoption of these standards had no impact on 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. 6 O Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Significant accounting practices, judgments and estimates During fiscal 2017, management completed a preliminary draft capital management plan (CMP), resulting in the adjustment of useful lives for many tangible capital assets. At that time, management updated the useful lives for many of its tangible capital assets to reflect the best estimate of useful lives at the time; however, this had not been updated for all tangible capital assets in the City's subiedger, which resulted in an uncorrected misstatement of $1.27 million for the fiscal 2017 audit. In the current year, management made progress towards the update of useful lives; however, some assets were still amortized based on legacy useful life information. The impact of this is an uncorrected misstatement of $920,133 as reflected in page 2 of this report. 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. Significant estimates include: 2018 2017 Post -employment benefits liability $6,260,194 $5,609,656 WSIB benefits liability $1,917,179 $1,862,876 Allowance for doubtful accounts $5,000 $5,000 Provision for property tax assessment appeals $1,330,418 $743,671 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, other than the merger of Veridian Corporation and Whitby Hydro Energy Corporation disclosed in Note 4 to the City's financial statements, we are not aware of any significant subsequent events that would require adjustment or disclosure in the financial statements at December 31, 2018. 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. Required communication Comments Audit service plan 1. Our responsibilities under Canadian GAAS, including forming and expressing an opinion on the financial statements Master Services Agreement dated October 28, 2016 and confirmation of changes letter dated August 23, 2018 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 September 11, 2018 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 Note 4 - Veridian Corporation Enquiries of those charged with governance 4. How those charged with governance exercise oversight over management's process for identifying and responding to the risk of fraud and the internal control that management has established to mitigate plan these risks Covered when presenting the Audit service 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 Year end 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 pages 6 and 7 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 noted 9 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering l Appendix 1 — Communication requirements Required communication Comments 11. Management judgments and accounting estimates See pages 6 and 7 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 for uncorrected misstatement 21. Any significant matters arising during the audit in connection with the City's related parties None noted 10 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 2 — Independence letter Appendix 2 Deloitte:. May 21, 2019 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, Independence letter 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, 2018. 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. 11 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 2 — Independence letter 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 30, 2018, 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 30, 2018 to May 21, 2019. 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 21, 2019. This letter is intended solely for the information and use of the Executive Committee, management, and others within the City and is not intended to be and should not be used for any other purposes. Yours truly, --/DALt.kg, LLP Chartered Professional Accountants Licensed Public Accountants 12 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 3 — Draft management representation letter Appendix 3 -Draft management representation letter June 17, 2019 Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Subject: Consolidated financial statements of The Corporation o Dear Ms. Colavecchia: ickering for the year ended December 31, 2018 This representation letter is provided in connection with the audit Deloitte LLP ("Deloitte" or "you") of the consolidated financial statements of The Corporation of the City of Pickering (the "City or �weo�,for they year ended December 31, 2018, and a summary of significant accounting policies and other explanatory information (the riencial Sta e for the purpose of expressing an opinion as to whether the Financial Statements present fairly, in all material respects, the financial `position, results of operations, and cash flows of the City in accordance with Public Sector Accounting Standards ("PSAS"). We confirm that, to the best of our knowledge and b informing ourselves: made such inquiries as we considered necessary for the purpose of appropriately Financial statements 1. We have fulfilled our responsibilities as set out in the terms of the engagement letter between the City and Deloitte dated October 28, 2016 and subsequent confirmation of changes letter dated August 23, 2018 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, 2018 and the results of its operations and 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 13 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Appendix 3 — Draft management representation letter 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, 2018 that require adjustment to the estimates and disclosures included in the Financial Statements. There are no changes in management's method of determining significant estimates,in the; current year. 3. The City has identified all related parties in accordance with Section PS 2200, Reated ##Party Disclosures ("PS 2200"). Management has made the appropriate disclosures with respect to its related party transactions in accordance wi h�PS 2200. This assessment is based on all relevant factors, including those listed in paragraph 16 of PS 2200. 4. We have determined that the Financial Statements are complete as of the date of his letter as this is the date when there are no changes to the Financial Statements (including disclosures) planned or expected. The Financial Staents have been approved in accordance with our process to finalize financial statements. 5. We have completed our review of events after December 31, 2018 a 'd 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 Statemet misstatements pertaining to the current period presented, are immaterial, he� both individually and in the aggregate, to tFinancial Statements taken as a whole. A list of the uncorrected misstatements aggregated by you is attached in Appendix A. Internal Controls 7. We acknowledge our responsibility for the design, tmp.lemenfiation and maintenance of internal control to prevent and detect fraud and error. 8. We have disclosed to you all known deficiencies in thed'esign or operation of internal control over financial reporting identified as part of our evaluation, including separately disclosing to you all such deficiencies that we believe to be significant deficiencies in internal control over financial reporting. Information provided 9. 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, 14 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 3 — Draft management representation letter c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. 10. Except as listed in Appendix A, all transactions have been properly recorded in the accounting records and are reflected in the Financial Statements. 11. 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 12. 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 Stat 13. 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. 14. We have disclosed to you all communications from regulatory agencies concerninngg non-compliance with or deficiencies in financial reporting practices and all known instances of non-compliance or suspected non compliances with laws and regulations whose effects should be considered when preparing the Financial Statements. 15. We have disclosed to you the identity of the entity's related part es and all` the''related party relationships and transactions of which we are aware, including guarantees, non -monetary transactloonsi nd transactions for no consideration and participation in a defined benefit plan that shares risks between group entities. • � 16. We have disclosed to you all known, actulitigatto,n and claims, whether or not they have been discussed with our lawyers, whose effects should be considered when preparing Financial Statements. As appropriate, these items have been disclosed and accounted for in the Financial Statements in accordance with P Independence matters For purposes of the following paragraphs, "Deloitte" shalNean Deloitte LLP and Deloitte Touche Tohmatsu Limited, including related member firms and affiliates. 17. 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. 18. We have adhered to all regulatory requirements regarding the provision of non -audit services by Deloitte to the City in accordance with applicable laws, regulations and rules that apply to the City, including the Executive Committee approval requirements. 19. 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 its established approval policies and procedures. 15 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Appendix 3 — Draft management representation letter Communications with taxation and regulatory agencies 20. 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 21. We have communicated to you all deficiencies in internal control of which we are aware aNe have disclosed to you any change in the City's internal control over financial reporting that occurred during the current year that hasmaterially affected, or is reasonably likely to materially affect, the City's internal control over financial reporting. Work of management's experts 22. 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 determiningamounts and disclosures used in the Financial Statements and underlying accounting records. We did not give any, nor cause any, instructionsto begiven to management's experts with respect to values or amounts derived in an attempt to bias their work, and we are not aware of anymatters'that have impacted the independence or objectivity of the experts. Liabilities and contingencies 23. We have disclosed to you all liabilities, provisions, contingent l�bilities and c®`n `ingent assets, including those associated with guarantees, whether written or oral, and they are appropriately refleicted in Loans and receivables 24. The City is responsible for determining andmaintaining 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.Y e Financial Statements. Employee future benefits 25. Employee future benefit costs, assets, and obligations 1iave 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 26. We have disclosed to you all correspondence relating to government transfers that the City has had with the funding body. 27. We have assessed the eligibility criteria and determined that the City is an eligible recipient for the government transfers received. 28. We have assessed the stipulations attached with the funding and have recognized the revenue in accordance with meeting the stipulations required. 16 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 3 — Draft management representation letter 29. 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 30. 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 31. Tangible capital assets have been recorded properly and consistently according t standards in Section PS 3150, Tangible Capital Assets. 32. Contributed tangible capital assets have been appropriately recorded at fair to ,unles case, have been recorded at an appropriate nominal value. All contributed tangible capital a 33. We have assessed the useful lives of tangible capital assets and have dete fined provide goods and services and therefore do not require a write down Environmental liabilities/contingencies 34. 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. value is not reasonably determinable, and in such eiave been appropriately disclosed. ngible capital assets contribute to the City's ability to Government Business Enterprises and Government Partnelrships t� 35. The City has appropriately classified its investments in Veridian Corporation as a Government Business Partnership. ��` ifs �$�ti;� 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‘ould affect"the investment's value as reported in the financial statements. Liabilities for contaminated sites 36. 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 37. We have disclosed to you all the documents that we expect to issue that may comprise other information, in the context of CAS 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements. 38. 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. 17 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering I Appendix 3 — Draft management representation letter 39. 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 18 © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering 1 Appendix 3 — Draft management representation letter Appendix A The Corporation of the City of Pickering Summary of uncorrected financial statement misstatements Year ended December 31, 2018 Amortization Expense is overstated DR. Accumulated Amortization $920,133 CR. Depreciation Expense $920,133 To correct overstatement of amortization expense for the year as a result of revi the year. mats,of useful lives of tangible capital assets for 19 © Deloitte LLP and affiliated entities. ATTACHMENT # A _TO REPORT #E/A. /9 DRAFT AS AT 05/29/2019 Consolidated fh 1ancialk$tatements of The Corporation;04k the City of Pickering December 31, 31, 2018 41;0- 4", DRAFT AS AT 05/29/2019 Independent Auditor's Report 1-2 3 4 Consolidated statement of financial. Consolidated statement of operations. Consolidated statement of ange ; net financial assets 5 Consolidated statement ofycas lows= 6 Notes to the consoIited finaneialatements 7-28 Deloitte., Independent Auditor's Report To the Members of Council of The Corporation of the City of Pickering DRAFTAS TLQO/29/2019 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Opinion We have audited the consolidated financial statements of The Corporation of the City of Pickering (the `City"), which comprise the consolidated statement of financial position as at December 31, 2018, and the consolidated statements of operations, change in net financial assets and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the City as at December 31, 2018, and the results of its operations, changes in net financial assets,. and its cash flows for the year then ended in accordance with Canadian public sector accounting standards ("PSAS"). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial "Statements" section of our report. We are independent of the City in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PSAS, 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. In preparing the financial statements, management is responsible for assessing the City's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the City or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the City's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. DRAFT AS AT 05/29/2019 As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 City's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the City's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the City to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation, • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the City to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. ,. Chartered Professional Accountants Licensed Public Accountants June 17, 2019 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Consolidated statement of financial position As at December 31, 2018 Financial assets Cash and cash equivalents Investments Taxes receivable Accounts receivable Note receivable Investment in Veridian Corporation Promissory notes receivable Land held for resale Liabilities Accounts payable and accrued liabilities Other current liabilities Deferred revenue Long-term liabilities Post -employment benefit liability WSIB benefit liabilities Net financial assets Non-financial assets Tangible capital asse s Prepaid expenses Inventory Notes 2018 2017 100,619,531 89,766,742 3 78,380,565 82,226,068 19,340,620 16, 571, 391 4,192,551 4,780,330 17 3,530,086 3,796,946 4 (b) 56,516,836 53,393,124 5 25,069,000 25,069,000 10(v) 4,144,903 294,531 Accumulated surplus 32.564,636 1,300,332 77,482,928 X29,418,973 6,260,194 1,917,179 148,944,242 142,849,850 10 259,879,354 231,462 372,227 275,898,132 26,414,563 4,694, 538 65,194,413 31,412,982 5,609,656 1,862,876 135,189,028 140, 709,104 240,256,987 295,196 427,332 260,483,043 240,979,515 11 403,332,893 381,688,619 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 3 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Consolidated statement of operations Year ended December 31, 2018 Revenue Residential and farm taxation Commercial and industrial taxation Taxation from other governments User charges Government grants and fees Other contributions and donations Development charges and developer contributions earned Contributed tangible capital assets Investment income Penalties and interests on taxes Fines Interest on promissory notes Sale of land Equity share of Veridian Corporation earnings Other Gain on disposal of tangible capital assets Expenses General government Protection to persons and ®perty Transportation services Environmental services Social and family services Recreational and cultural services Planning and development Loss on disposal of tangible capital assets Notes 2018 2017 Budget (Note 18) Actual Actual 49,425,675 50,047,871 11,053,425 11,088,267 8,312,581 8,460,282 11,009,646 15,190,523 6,798,272 5,554,251 1,129,925 5,230,490 31,930,574 3,334,550 10(i) 995,033 400,000 1,875,542 34,,13083. 1,229,1382,5 68,692 83 4224 00,000 4 (c Annual surplus Accumulated surplus, beginning of year Accumulated surplus, end of year 5,050,712 1,240..% 900,306 131,547,476 23,458,467 25,890,304 13,184,660 3,781,485 833,586 28,472,510 3,858,162 47,468,880 10,793,717 8,644,938 11,082,163 6,356,344 2,189,348 1,468,880 5,014,463 941,197 2,362,493 855,391 1,229,138 4,179,608 358,861 22,927,289 112,409,881 125,872,710 17,065,742 24,761,169 12,728,165 3,452,661 780,850 28,680,931 3,050,084 246,005 16,298,488 23,979,527 12,296,200 3,624,256 765,708 27,190,180 2,583,253 99,479,174 32,068,302 381,688,619 413,756,921 90,765,607 21,644,274 381,688,619 403,332,893 86,737,612 39,135,098 342,553,521 381,688,619 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 4 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Consolidated statement of change in net financial assets Year ended December 31, 2018 Annual surplus Acquisition of tangible capital assets Amortization of tangible capital assets Loss (gain) on disposal of tangible capital assets Proceeds on disposal of tangible capital assets 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 financia ets Net financial assets, begi i:g of year Net financial assets, eniko ear 2018 2017 Budget (Note 18) Actual Actual 32,068,302 (62,755,373) 10,392,202 21,644, 274 (37,520,480) 12,480,087 39,135,098 (31,772,704) 10,800,559 246,005 (22,927,289) x-..137,444 23,501,156 (20,294,819) ,012,670) 18,736,820 (20;294,869) 140,709,104 120,414,235 4,952,232 82,345 5,034,577 (700,163) 755,268 (231,462) 295,196 118,839 2,140,746 140,709,104 142,849,850 3,762,471 215,451 3,977,922 (818,222) 613,402 (295,196) 248,303 (251,713) 22,463,029 118, 246,075 140,709,104 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement Page 5 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Consolidated statement of cash flows Year ended December 31, 2018 2018 2017 Operating transactions Annual surplus 21,644,274 39,135,098 Non-cash items Amortization of tangible capital assets 12,480,087 10,800,559 Loss (gain) on disposal of tangible capital assets 246,005 (22,927,289) Equity share of Veridian Corporation (5,050,712) (4,179,608) Contributed tangible capital assets recorded in revenue (995,033) (5,014,463) Change in non-cash operating items Taxes receivable (2,769,229) (837,961) Accounts receivable 587,779 (1,690,700) Accounts payable and accrued liabilities f 6150,073 6,731,036 Other current liabilities , .� (3394,206) 4,561,231 Deferred revenue288,515 4,692,846. Post -employment benefit liability " 650,538 - 650,156 WSIB benefit liabilities 54y3O3' 56,776 Inventory � 55,105 (204,820) Land held for resale 850,372) (294,531) Prepaid expenses 63,734 (46,893) 38,160,861 31,431,437 Capital transactions Acquisition of tangible capital assets (net of transfers and contributions) Proceeds on disposal of tangible capital Investing transactions, Decrease (increase) in i e tments Dividends received from Verian Corporation Financing transactions Proceeds from debentures issued 3,604,000 12,941,000 Principal repayment of debentures (5,598,009) (2,983,834) Decrease in note receivable 266,860 258,330 (31,490,870) (22,780,319) 137,444 23,501,156 (31,353,426) 720,837 3,845,503 (33,368,104) 1,927,000 2,093,870 5,772,503 (31,274,234) (1,727,149) 10,215,496 Increase in cash and cash equivalents 10,852,789 11,093,536 Cash and cash equivalents, beginning of year 89,766,742 78,673,206 Cash and cash equivalents, end of year 100,619,531 89,766,742 Cash and cash equivalents consists of Cash 16,110,036 11,376,673 Cash equivalents 84,509,495 78,390,069 100,619,531 89,766,742 The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement. Page 6 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 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 (1) 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 (ii) Investment in Veridian Corporation The City's investment in Veridian Corporate is accounted for on a modified equity basis, consistent with Canadian public sector mounting standards for investments in government business partnerships. Ur3der the modified equity basis, Veridian Corporation's accounting policies are rlotadjustedto conform to those of the City and inter -organizational transactions orifi balances are not eliminated. The City recognizes its equity interest in the annual earnin s:or loss of Veridian Corporation in its consolidated statement of opeitions1with a corresponding increase or decrease in its investment asset account D` idends that tl�e City may receive from Veridian Corporation and other capil'transaction re reflected as adjustments in the investment asset account. eliminated on consolidation. (iii) Operations ofchool hoards and tie Region of Durham The taxati n, other revenues, expemaynditures, assets and liabilities with respect to the operations of the school boards and the Region of Durham (the "Region") are not reflected in these consolid'aed 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 (1) 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. (ii) 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. Page 7 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (iii) Investments Long-term investments are recorded at cost and any loss in value which is considered other than temporary is recorded as incurred. Any premium or discount at the purchase of an investment is amortized over the life of the investment. (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. During fiscal 2018, the City performed a review of its tangible capital assets and updated estimated useful lives for certain tangible capital assets. Amortization is recorded on the syajgbIt4line basis over the estimated useful life of the tangible capital asset commencing o cncn a the asset is available for use as follows: Buildings Machinery and equipment Vehicles Infrastructure - Roads Infrastructure - Storm sewers Infrastructure - Sidewalks Infrastructure - Parks Information technology hard+ar;-e Library collection materials Furniture and fixtures to 50 years various to 15 years 10'F'd 75 years 50 to 100 years X15 to I5 years 10,,to 100 years tto 10 years to 7 years various One half of the,,yannual amortization is charged in the year of acquisition and in the year of dispps` ! Assets,nder construction are not amortized until the tangible capital asset is available for productive use. Land is not amortized. eat Tangible capital assets received as contributions are recorded at their fair value at the date contributed, with the c "orresponding amount recorded as revenue. (v) Accounting fo.it/0operty Tax Capping Provisions resulting from the Ontario Fair Assessment System The net impact on property taxes as a result of the application of the capping provisions does not affect the Consolidated 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 represent contributions, user charges and fees which have been collected but for which the related services have yet to be performed. 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. Page 8 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (viii) Inventory Inventory is valued at the lower of cost and replacement cost. Cost is determined on a weighted -average basis. (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 4 Tax revenue is recognized on all taxable properties v,thin the City that are included in the tax roll provided by the Municipal PropertSi_esAment Corporation, using property tax values included in the tax roll or property tax``value that can be reasonably estimated by the City as it relates to supplementary or mitted assessments, at tax rates authorized by Council for the City's own j urposes he period for which the tax is levied. (xi) Intangible assets Intangible assets are riot recognized%as assetstein the i iancial statements. (xii) Contaminated sites Contaminated sites are the result of co tamtion being introduced into air, soil, water or sediment of a chemical, organic ar Bioactive material 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; ti (b) contamination exceeds the environmental standard; (c) the City is>directly responsible or accepts responsibility for the liability; (d) future economic betefits will be given up; and (e) a reasonable estimate of the liability can be made. A liability is recorded only for sites that are not in productive use or if there was an unexpected event that resulted in contamination. Changes in estimates are recorded in the City's statement of operations. The City does 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. Page 9 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (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. 2. Operations of school boards and the Regional Municipality of Durham Further to Note 1a (iii) requisitions are made by the Regioa -Municipality 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 remitteds!.are summarized as follows: X2018 2017 Region Schood egion School board Taxation 111,062,44 47,323,546 Payments in lieu of taxes 6,260,91 ` , 380;826 117,323,43-9 4+7,704,072 3. Investments Investments 106,559,478 6,457,366 113,016,844 45,352,981 381,700 45,734,681 2018 2017 st Market value Cost Marlet value $ 80,565 78,041,001 82,226,068 81,919,658 Investments are comprised of deposit notes, bonds, and guaranteed investment 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 41 per cent interest in Veridian Corporation. Veridian Corporation, as a government business partnership, is accounted for on the modified equity basis in these consolidated financial statements. Veridian Corporation serves as the electrical distribution utility for a number of communities including the four noted above and conducts non-regulated utility service ventures through its subsidiaries. Page 10 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 . Investment in Veridian Corporation (continued) (a) (continued) The following table provides condensed supplementary consolidated financial information for Veridian Corporation and its subsidiaries for the year ended December 31. All amounts in tables are disclosed in thousands of dollars: 2018 (000's) 2017 (000's) Assets Current 70,908 77,555 Capital and intangibles 291,057 269,380 Other < _„ .. 166 1,097 348,032 Regulatory balances x,217 2,852 Liabilities Current Long-term debt Other Shareholders' equity Share capital Contributed capita Accumulates) other compreti"ensiveloss Retained earrings 152,979 7,132 33,310 223,421 3 50, 884 116,129 65,021 29,765 210,915 67,260 67,260 25 25 (53) (316) 7 0, 537 63,258 137,769 130,227 Regulatory balanel 8,158 Comprehensive income Commodity revenue Commodity expenses Distribution revenue Other income Operating expenses Other expense Other comprehensive income Net movements in regulatory balances, net of tax Income tax expense 9,742 369,348 3 50, 884 266,543 280,206 (269,157) (277,975) 54,254 52,225 3,555 2,630 (42,200) (41,620) (3,827) (2,593) 263 24 5,949 (3,061) 965 (3,668) 12,319 10,194 Page 11 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 4. Investment in Veridian Corporation (continued) (b) City of Pickering's investment represented by: Promissory notes receivable (Note 5) Investments in Veridian Corporation Initial investment in shares of the Corporation Accumulated earnings Accumulated dividends received Adjustment to value of investment (c) Equity in Veridian Corporation Balance, beginning of year Equity share of net earnings for the Y 4 Y 9 Year, w, Dividend received from Veridiap'Cbrporaon 2018 2017 $ $ 25,069,000 25,069,000 30,496,196 55,630,394 (30,425,462) 815,708 30,496,196 50,579,682 (28, 498, 462 ) 815,708 81, 50 5,144 5,050,712 (1,927,000) 53, 393,124 2017 $ 79, 419, 406 4,179,608 (2,093,870) Balance, end of year (Note 11) 84,628,856 81,505,144 (d) Contingencies andguarantees of Veridian Corporation (the "Corporation") as disclosed in their consolidated financial statements are as follows: Insurance claims The Corporation'is a member of the Municipal Electric Association Reciprocal Insurance Exchange ("MEARIE"),jwhich 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 indemnity or inter -insurance with each other. MEARIE provides general liability insurance to member electric 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 $10,000,000 excess coverage on top of the regular liability and vehicle coverage. (1) Page 12 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 4. Investment in Veridian Corporation (continued) (d) Contingencies and guarantees of Veridian Corporation (the "Corporation") as disclosed in their consolidated financial statements are as follows: (continued) (ii) Contractual obligation - Hydro One Networks Inc. ("HONI") (continued) The Corporation's subsidiary, Veridian Connections Inc. ("VCI"), is party to a connection and cost recovery agreement with HONI related to the construction by HONI of a transformer station designated to meet VCI's anticipated electricity load growth. Construction of the project was completed during 2007 and VCI connected to the transformer station during 2008. To the extent that the cost of the project is not recoverable from future transformation connection revenues, VCI is obligated to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to VCI. The construction costs allocated to VCI for the project are,$- ,975,000. ,w The Corporation has recorded a liability an $1,484,000 as at December 31, 2018 (2 best estimate of the future transformatio process of performing a true -up based on a I anniversary of the in-service date and is expecte on actual load at the end of the fifteenth.nniveir General claims onding intangible asset for A00), based on management's ction - nue siortfall. HONI is in the Toad atth end7of the tenth to perfo another true -up based of the in-service date. From time to time, the Corporatioriis )n�•Iv regulatory proceedings in th rrmal Ceofurse o' management, the outcome of such m tte the Corporation's consolidated financial'rs,� osr flows. (e) Lease commitrfetits Future minirnur various lawsuits, claims and siness. In the opinion of I not have a material adverse effect on tion and results of operations or cash ease paymenta obligations under operating leases are as follows: (000's) 2019 2020 2021 2022 2023 Thereafter 6 2 2 2 2 50 64 (f) Subsequent event On April 1, 2019, Veridian Corporation amalgamated with Whitby Hydro Energy Corporation to form Elexicon Corporation. The predecessor shareholders of Veridian Corporation being the City of Pickering, the Town of Ajax, the City of Belleville and the Municipality of Clarington will collectively own 68% of the newly formed Elexicon Corporation. This will result in the City having a 27.88% interest in Elexicon Corporation. The financial impact of the amalgamation to the City's investment and accumulated surplus balances will be reported in the City's consolidated financial statements for the December 31, 2019 year end. Page 13 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 5. Promissory notes receivable Promissory note receivable from Veridian Corporation which matured on 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 (See (a) and (c) below) Promissory note receivable from Veridian Connections Inc. maturing November 1, 2039 and bearing interest at the Ontario Energy Board deemed long-term debt rate for each successive five year period thereafter (4.47% effective January 1, 2015) 2018 2017 7,095,000 7,095,000 (a) The promissory note receivable froAyeridiatl Corpora ion matured on December 31, 2018 and was extended to the earlier ofecember 31, 2019 or the closing date of the merger between Veridian Corporation andWhitby Hydro Energy Corporation, as defined in the Merger Participation Agreemenbetween the Town of Ajax, City of Belleville, the Municipality of Clarington, City of ?ickering, Town of Whitby, Veridian Corporation, Veridian Connect on°sInc., Wh`i by Otto Energy Corporation and Whitby Hydro Electric Corporation. All other terms of the promissory note remain the same. (b) Interest revenue earned from these notes receivable totaled $1,229,138 (2017 - $1,229,138). The $7•,095,000 promissory note from Veridian Corporation is convertible into common shares at tt}e rate ofne common share for every $1,000 of principal amount, at the option of the City Tie note from Veridian Connections Inc. is no longer convertible but the City may demand ful **"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. (c) On November 20, 2014, the Ontario Energy Board's deemed long-term rate was 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. 974,000 17,974,000 25,089,000 25,069,000 Page 14 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 6. Deferred revenue 2018 2017 Obligatory reserve funds Development charges 58,789,415 48,100,585 Parkland 6,463,242 4,532,056 Federal gas tax 5,310,843 5,654,549 Third party/Developer's contributions reserve fund 2,790,108 2,957,593 Public benefits — 141,387 Other unearned revenues Continuity of deferred revenue is as follows: Balance, beginning of year Restricted funds received General funds received Interest earned (restricted funds 73,353,608 61,386,170 4,129,320 3,808,243 482,928 65,194,413 2017 $ $ 6594,413 60,501,567 0,092,304 9,169,370 896,508 2,900,813 1,064,773 830,571 22, 053,585 12, 900, 754 Earned restrict venue transferred to Wperations 9,189,639 7,151,044 Earned revenue trajsferred to op'ations 575,431 1,056,864 Balance, end of year 9,765,070 8,207,908 77,482,928 65,194,413 Page 15 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 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: Roads and streetlights Community facilities, libraries and parks Protection services Stormwater system 8. Post -employment benefits liability (a) Post -employment benefits liability The City makes available to qualiffying emp ® ees ©retire before the age of 65, the opportunity to continue their coverage for nefits such as post-retirement extended healthcare benefits. Coveragea^�ce`ases 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 retireme`' ittor termina4ion.Th�rnost recent actuarial valuation of the post - employment benefits was performed at December 31, 2017, with a projection to December 31, 2018. Information about the City's benefits liability is as follows: 2018 2017 564,296 1,226,910 805,139 1,385,745 6,535 337,226 10,829 645,360 ,9$6,7994, 3,595,241 Accrued benefits liability, beginning of year Plan amendment Current service costs Interest on accrued benefits Amortization of actuarial losses Benefits paid during the year 2018 2017 5,609,656 4,959,500 384,991 535,285 416,276 411,606 223,108 538,856 186,200 (835,209) (560,419) Accrued benefits liability, end of year 6,260,194 5,609,656 Accrued benefit obligation 11,237,755 11,126,073 Unamortized actuarial losses (4,977,561) (5,516,417) Accrued benefits liability, end of year 6,260,194 5,609,656 Page 16 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 8. Post -employment benefits liability (continued) (a) Post -employment benefits liability (continued) The main actuarial assumptions employed in the actuarial valuations for the post - employment benefits are as follows: (i) Discount rate The present value as at December 31, 2018 of the future benefits was determined using a discount rate of 3.75% (2017 - 3.75%). (ii) Dental costs The dental cost trend rate was 3.75% (2017 - 3.75%) increase per annum. (iii) Health costs Health costs were assumed to increase at 6.42:,i1(2 6.75%) and decrease by 0.33% (2017 - 0.33%) increments per year to anj i6n ate rate of 3.75% per year in 2027 and thereafter. (b) Workplace Safety and Insurance Board (WSIB)I if liabrh Effective January 1, 2001, the City became a Schedule II emplo"yieunder the Workplace Safety & Insurance Act and follows a policy of self insurance for the risk associated with paying benefits for workplace injuries for -its employee . The WSIB administers the claims related to workplace injuries and is'reirnbursed by'tl e City. The most recent actuarial valuation of the WSIB benefits was p formed at December 31, 2016, with a projection to December 31, 2018 Information about the City's Wpgibenefit Iiab, er itqs as follows: 2018 2017 Accrued WSIB liability, beginning of year 1,862,876 1,806,100 Current service cost 128,519 124,773 Interest on accrueenefits7 90,135 89,144 Amortization of actuariasses 30,254 30,254 Benefits paid during they ear (194,605) (187,395) 1,917,179 1,862,876 Accrued benefit obligation 2,310,476 2,286,427 Unamortized actuarial losses (393,297) (423,551) Accrued benefits liability, end of year 1,917,179 1,862,876 The main actuarial assumptions employed in the actuarial valuations are as follows: (i) Discount rate The present value as at December 31, 2018 of the future benefits was determined using a discount rate of 4.0% (2017 - 4.0%). (ii) Inflation rate The rate of inflation was assumed to be 1.75% (2017 - 1.75%) per annum. Page 17 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 8. Post -employment benefits liability (continued) (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities (continued) (iii) WSIB Administration Rate 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, 2018 (Note 11) was $3,548,321 (2017 - $3,209,349). In addition, the City purchased two insurance policies that protect the City 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 upyo The City is responsible for the paymeri of principal and interest charges,on tong erm liabilities issued by the Region4Municipality of Durham on the City's beaCf At the er the year the outstanding p rgg I amount o this liability is 29,418,973 2017 31,412,982 (b) The above Io term liabilities t ave maturity dates of July 12, 2021 and 2022, October 15, 2020, Septemb \29, 2021, O €ober 16, 2023, July 2, 2019 and 2029, October 17, 2021, 2026 and 2031,"Oct9ber 13, 2012' 2027, 2032 and 2037 and September 14, 2023, 2028, 2033 and 2038 witf'uarious,interest rates ranging from 1.10% to 5.12%. Principal � repayments are summarizorids follows: 2019 2020 2021 2022 2023 Thereafter 3,129, 986 3,164,344 3,338,385 2,372,998 2,172, 597 15,240,663 29,418,973 (c) Long-term liabilities include principal sums of $952,000 (2017 - $2,415,000) which may be refinanced by the issuance of debentures over a further period not to exceed 5 years. (d) The above Tong -term liabilities have been approved by Council by-law. The annual principal and interest payments required to service these liabilities are within the annual debt repayment limit prescribed by the Ministry of Municipal Affairs and Housing. (e) Interest expense recorded in the year relating to these Tong -term liabilities is $935,509 (2017 - $715,544). Page 18 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 10. Tangible capital assets Information relating to tangible capital assets is as follows: (1) 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 2018 amounted to $995,033 (2017 - $5,014,463). (ii) 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 Picker ng. These items are not recognized as tangible capital assets in the financial tatementsbecauese a reasonable estimate of the future benefits associated with suert r clro P p y can> bmade. Any m acquisition or betterment of these assets is recded 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 $31,236,184 (201743$18,379,60 :a During the year, there were no write-downs of assets (2017 - $Nil) and no interest was �w- capitalized during the year (2017 $Nil). (v) Land held for res.. During the year, the City acquired a land parcel along the 407 corridor from Infrastructure Ontario for the purpose of resale for economic development. As a result, this land was not capitalized as a tangible capital asset but instead recorded as land held for resale. The value reported on tle Consolidated Statement of Financial Position reflects the purchase price and other related servicinng costs recoverable on the sale of land. Subsequent to year end, this parcel of land was sold to Kubota Inc. in January 2019. Page 19 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 10. Tangible capital assets (continued) Machinery Information Library Furniture Assets and technology collection and under Land Buildings equipment Vehicles Infrastructure hardware materials fixtures construction $ $ $ $ $ $ $ $ $ 2018 $ Cost Balance,' beginning of year 55,662,991 81,644,369 9,149,950 13,343,358 280,90;29 1,785,121 2,358,369 730,808 18,379,602 463,992,863 Add if' Additions during the year - 484,872 3,819,321 1,621,835 494,571 1226 3 6,475 366,812 153,602 17,891,159 37,520,480 Less Disposals/transfers during the year 150,407 1,540,644 332,029 530,797 749,729 119,205 474,319 - 5,034,577 8,931,707 Balance, end of year 55,997,456 83,923,046 10,439,756 13,307 132 29 0,399 092,391 2,250,862 884,410 31,236,184 492,581,636 Accumulated amortization Balance, beginning of year Add - 44,034,616 4,980,437 76279,120 4,66M9 1,229,914 1,224,942 320,954 - 223,735,876 N846,596,691,254 227,779 405,060 49,992 - 12,480,087 Amortization - 3,508,849 750,557 Less Accumulated amortization on disposals - 1,528,630.'" 303,827 !' 530,797' 592,665 83,443 474,319 - - 3,513,681 Balance, end of year - 46,014,835,,. 5,427 167 24,594,919 170,764,482 1,374,250 1,155,683 370,946 - 232,702,282 Net book value of -, tangible capital assets 55,997,456 37,908,211 012,589 12'5,712 213 121 685 917 718,141 1,095,179 513,464 31,236,184 259,879,354 Page 20 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 10. Tangible capital assets (continued) Cost Balance, beginning of year 55,691,303 80,777,919 9,045,684 13,167,746 26 2,91. 1,565,764 2,466,112 646,134 11,233,428 441,867,005 Add Additions during the year 470,067 1,275,576 973,931 768,350 1 6 081 2 427r 347,502 84,674 11,124,096 31,772,704 Less Disposals/transfers during the year 498,379 409,126 869,665 592,738 820,70 23,070 455,245 — 3,977,922 9,646,846 Balance, end of year 55,662,991 81,644,369 9,149,950 13,343,358', 2'80'988,295 Machinery and Land Buildings equipment $ $ $ Information Library Furniture Assets technology collection and under Vehicles Infrastructure hardware materials fixtures construction $ $ 2017 Accumulated amortization Balance, beginning of year Add Amortization Less Accumulated amortization on disposals Balance, end of year Net book value of tangible capital assets 6785,121 2,358,369 730,808 18,379,602 463,992,863 — 42,337,115 5,143,393 1 1,220 1,052,167 1,252,263 282,879 — 218,030,374 - 2,095,387 �„x435 ° 0 521 6,439,400 200,817 427,924 38,075 — 10,800,559 — 397;8$$ 821,391 592,738 2,804,727 23,070 455,245 — — 5,095,057 — 44,034,616:; 4,980,437 7,279,120 164,665,893 1,229,914 1,224,942 320,954 — 223,735,876 55,662 991 37.609 753 6.064 238 116.272 402 555 207 1,133 427 409.854 18,379,602 240,256,987 Page 21 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 11. Accumulated surplus The City's accumulated surplus is comprised of the following: 2018 2017 Capital fund 20,701,530 25,169,415 Operating fund 125,247 125,237 Equity in Veridian Corporation 84,628,856 81,505,144 Tangible capital assets 259,879,354 240,256,987 Post -employment benefits liability (6,081,194) (5,430,656) Intemal loans (1,986,799) (3,595,241) Net long-term liabilities (29,418,973) (31,412,982) Note receivable soccer facility 3,530,086 3,796,946 WSIB benefit liabilities dr(1;17,179) (1,862,876) 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 Land purchase Seaton development review Financial systems Senior centre 00,000 400,000 642 ` 869,293 2,316; 1,804,790 1,702,591 1,632,591 7,962,479 16,823,997 84,927 6,884,793 703,285 448,190 1,612,757 1,426,438 390 390 14,403 99,403 1,437,822 1,641,805 43,647 1,068,647 700,000 450,000 Accessibility initiatives ' 31,944 31,944 Winter control � 700,000 700,000 Sustainability initiate- 294,455 51,376 Duffin Heights 3,430,925 3,660,177 Facilities 119,345 258,645 Accelerated infrastructure program 519,500 519,500 Fence 150,000 150,000 Minor buildings replacement 300,000 100,000 Financial Impact Agreement - 210,745 Tennis Courts 111,100 - 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 Stomiwater management Ontario Community Infrastructure Fund Seaton infrastructure Seaton Financial Impact Agreement 377,363 174,873 297,686 293,371 3,548,321 3,209,349 522,608 417,706 144,127 152,227 18,375,610 25,773,590 3,456,460 2,417,954 2,683,162 1,354,597 616,668 55,761 223,816 54,493 777,597 - 403,332,893 381,688,619 Page 22 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 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 496,000 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, 2018. The results of this valuation disclosed total actuarial liabilities as at that date of $100,081 million in respect of benefits accrued for service with actuarial assets at that date of $95,890 million indicating an actuarial deficit of $4,191 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 o he OMERS pension surplus or deficit. Contributions made by the City to OMERS on accoulnt of rreli Service for 2018 were $3,985,649 (2017 - $3,834,325). 13. Trust Funds Trust funds administered by the City amountg toy '36 148 (2017 - $361,263) have not been included in the Consolidated Statement of iihanaf Po ion nor have their operations been included in the Consolidated Statemer 'Of Oper�aons. 14. Related party transactions Veridian Corporatio The City of Pickering, is a principal slt. reholer in Veridian Corporation (Note 4). The City receives electricity‘a d services fro pn Veridian Corporation and its subsidiary. 2018 2017 Transactions Revenues Interest on promissory notes 1,229,138 1,229,138 Property taxes levied 45,172 49,993 Expenses Electrical energy and services 2,077,577 2,153,292 Balances Accounts payable and accrued liabilities 403,117 468,782 Promissory notes receivable 25,069,000 25,069,000 Page 23 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 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. (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 of 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 many includ indemnities in favour of third parties, such as purchase and sale agreements,>identi lit agreements, engagement letters with advisors and consultants, outsourcing agreeme -leasin contracts, information technology agreements and serviceagreements. These indemnification agreements may require the City to compensate counterparties for losses incurred by the counterparties as a result of breaches in rrepresentationand regulations or as a result of litigation claims or statutory sanctions thatay m,suffered by the counterparty as a consequence of the transaction. The terms off�hese indemnities are not explicitly defined and the maximum amount of any po ential'freimbursement cannot be reasonably estimated. 41- The nature of these indemnification a'g eements p reveres 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. 16. Contingent liabilities Litigation, The City has been named as a defendant in certain legal actions in which damages have been sought. The outcome of these actions is 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, 2014 to November 4, 2029. Under the terms of the agreement, the PSC will repay 52.25% of the City's total cost of purchasing the land, constructing the Facility and the related improvements. In 2015, the City recorded 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. Page 24 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 17. Contractual arrangement (continued) 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. 18. Budget figures The 2018 Budget adopted by Council on February 26, 2018 was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while Canadian 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 Fina pal Assets represent the budget adopted by Council on February 26, 2018 with adjustmen sr ,follows; 2018 U> 2018 Revenue Taxation Capital Other Expenditures General governme Protection to persons`and„property Transportation services a "' Environmental services Social and family services Recreational and cultural services Planning and development Councillon--�T,CA approved expendikures budget from capital,. ost- ern 1p yment benefits/ amortization Budget presented in statements 68,791,681 VEr50 24,104 7,731,691 $ - 68,791,681 - 45,0 24,104 - 17,731,691 131 547;f476 - 131,547,476 Annual surplus (deficit) Capital expenditures Transfers from reserve and reserve funds Dividend from Veridian Corporation Principal repayment of debt Principal repayment of PSC note Debt proceeds Prior year operating fund surplus 1'7,599,920 24,969,354 9,353,516 1,653,105 833,586 24,663,788 3,856,353 82,929,622 5,230,000 12,000 245,000 290,000 5,777,000 628,547 908,950 3,586,144 2,128,380 3,518,722 1,809 10,772,552 23,458,467 25,890,304 13,184,660 3,781,485 833,586 28,472,510 3,858,162 99,479,174 48,617,854 (68,532,373) 12,555,317 1,927,000 (4,629,768) 219,000 9,717,970 (125,000) (5,777,000) (10,772,552) 5,777,000 — 32,068,302 (62,755,373) Page 25 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 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•„ Public works services Public works includes construction and maintenance of e City's roadways, including snow removal, sidewalk repairs, street lighting and maintenance. .f the storm water system. Social and family services Social services for assistance or service Recreation and culture services Recreation and cultural services include ecreation programs, maintenance and rental of facilities and parks, operation of the City s:museum and library services. Planning and development Planning and development provides number of services including municipal planning and review of all property development( plans. Segmented information has -,been provided in the following pages. Page 26 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 19. Segmented information (continued) 2018 Protection Social and to persons Public works Recreational Plaming and family General and property services and culturar17 evelopment services government Consolidated $ $ ;= $ ' ':_ $ $ $ $ Revenue Grants 56,957 3,111,935 2,161568 "' 107,487 116,304 5,554,251 User charges 7,104,411 35,961 977379 1,192,459 58,984 821,329 15,190,523 Tax related revenues - -"- - - - 72,165,112 72,165,112 Developer revenue 1,011,037 4,301,437 1,96 879 ' 151,084 2,475 1,138,128 8,565,040 Contributed tangible capital assets - 510,162=, - - 484,871 995,033 Equity share of Veridian Corporation - - - 5,050,712 5,050,712 Other revenues 976,8902 74,033 - - 3,838,287 4,889,210 9,149,295 7ASS ,495 ;a, 10,173,859 1,343,543 168,946 83,614,743 112,409,881 Expenses Salaries and wages 20,770,883, 5,1431629 16,103,489 2,541,302 347,132 9,688,495 54,594,930 Materials and supplies 2,235,136 s 30,702 6,492,757 203,914 137,433 5,160,551 17,623,493 Contracted services 834,843,1 921,867 739,832 292,664 137,692 1,073,558 4,000,456 Amortization 753,343 258,094 4,571,384 2,359 - 894,907 12,480,087 Other 166,964 463,534 773,469 9,845 158,593 248,231 1,820,636 Loss on disposal of tangible capital assets (17,671) 120,498 93,412 - - 49,766 246,005 24,743,498 16,301,324 28,774,343 3,050,084 780,850 17,115,508 90,765,607 Annual (deficit) surplus (15,594,203) (8,341,829) (18,600,484) (1,706,541) (611,904) 66,499,235 21,644,274 Page 27 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2018 19. Segmented information (continued) Revenue Grants User charges Tax related revenues Developer revenue Contributed tangible 2017 Protection to persons Public works Recreational Planning and and property services and cultural development $ $ $ Social and family General services government Consolidated $ $ $ 9,877 5,489,553 58 :'.5 159,605 114,264 6,356,344 3,848,727 45,432 5,655,740 7 842 54,457 765,965 11,082,163 - - - - 69,270,028 69,270,028 199,275 741,431 x,006 17,700 - 86,468 1,468,880 capital assets - 4,564,'43 ` 450 02 Equity share of Veridian Corporation - - Na * ;1 - - - 4,179,608 4,179,608 Gain (loss) on disposal of tangible capital assets $ _ 32 31,646 - - 22,883,018 22,927,289 Other revenues 14 ,633 220,2 _ 597,655 54,598 - 2,495,839 5,573,935 41 51243,702 14'893,504 ' 7,742,112 784,140 214,062 99,795,190 125,872,710 Expenses Salaries and wages 20 074,847 a ;771,298 15,744,394 2,220,477 349,285 9,692,750 52,853,051 Materials and supplies 2,194,303 3,606,212 6,481,518 214,166 149,187 4,817,022 17,462,408 Contracted services 808,517 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 - 5,014,463 Page 28 Financial statements of DRAFT AS AT 05/29/2019 The Corporation of the Trust Funds December 31, 2018 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Trust Funds December 31, 2018 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 Deloitte Independent Auditor's Report To the Members of Council of The Corporation of the City of Pickering DRAF bASitgilD5/29/2019 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Opinion We have audited the financial statements of The Corporation of the City of Pickering Trust Funds (the "Trust Funds"), which comprise the statement of financial position as at December 31, 2018, and the statement of financial activities and fund balances for the year then ended, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in—all material respects, the financial position of the Trust Funds as at December 31, 2018, and the results of its operations changes in fund balances for the year then ended in accordance with Canadian accounting standards for Not -for -Profit Organizations. Basis for Opinion We conducted our audit in accordance with Canadian generally, accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of the Trust Funds in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that_the audit„evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian accounting standards for Not -for -Profit Organizations, 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. In preparing the financial statements, management is responsible for assessing the Trust Funds' ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Trust Funds or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Trust Funds' financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. DRAFT AS AT 05/29/2019 As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Trust Funds' internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Trust Funds' ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Trust Funds to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. (To be signed Deloitte LLP) DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Trust Funds Statement of financial activities and fund balances year ended December 31, 2018 2018 2017 Revenue Interest Fund balance, beginning of year Fund balance, end of year 5,885 6,114 361,263 355,149 367,148 361,263 The accompanying notes to the financial statements are an integral part of this financial statement. Page 3 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Trust Funds Statement of financial position as at December 31, 2018 2018 2017 Assets Cash and investments 356,700 356,700 Interest receivable 10,448 4,563 367,148 361,263 Trust Fund position 367,148 361,263 The accompanying notes to the financial statements are an integral part of this financial statement. Page 4 DRAFT AS AT 05/29/2019 The Corporation of the City of Pickering Trust Funds Notes to the financial statements December 31, 2018 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 Dorothy C destitute elderly. The fund balance is comprised of inve e an $367,148 (2017 - $361,263). 3. Statement of cash flows State for the care and upkeep of the umulaend interest amounting to A statement of cash flows has not been presente financial statements presented. formato1n pis readily determinable from the Page 5 Financial statements of DRAFT AS AT 05/29/2019 City of Pickering Public Library Bo December 31, 2018 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board December 31, 2018 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 Independent Auditor's Report To the Board of Directors of The City of Pickering Public Library Board, and Members of Council of the Corporation of the City of Pickering DRAFTD@Ibivga5/29/2019 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Opinion We have audited the financial statements of City of Pickering Public Library Board (the "Library Board"), which comprise the statement of financial position as at December 31, 2018, and the statements of operations, change in net debt and cash flows, for the year then ended, and notes to the financial statements, including a summary of significant accounting policies (collectively referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Library Board as at December 31, 2018, and the results of its operations, changes in net debt, and its cash flows for the year then ended in 'accordance with Canadian public sector accounting standards ("PSAS"). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial' Statements" section of our report. We are independent of the Library Board in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that'the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and•Those charged with governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PSAS, 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. In preparing the financial statements, management is responsible for assessing the Library Board's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Library Board or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Library Board's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. DRAFT AS AT 05/29/2019 As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Library Board's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Library Board's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Library Board to cease to continue as a going concern. • Evaluate the overall presentation, structure and content -of -the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. (To be signed Deloitte LLP) Chartered Professional Accountants Licensed Public Accountants , 2019 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Statement of fmancial position as at December 31, 2018 2018 2017 Financial assets Cash 1,225 1,225 Accounts receivable 2,294 1,333 Due from the Government of Canada 11,335 14,927 Due from City of Pickering 138,181 162,706 153,035 180,191 Liabilities Accounts payable and accrued liabilities Deferred Revenue Post -employment benefits liability (Note 2) 198,723 202,851 14,793 464,078 452,568 662,801 670,212 Net debt Non-financial assets Tangible capital assets (Note 4) Prepaid expense Accumulated surplus (Note 5) 9,766) (490,021) 1,494,063 1,494,740 45,688 37,453 1,539,751 1,532,193 1,029,985 1,042,172 The accompanying notes to the financial statements are an integral part of this financial statement. Page 3 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Statement of operations year ended December 31, 2018 2018 2017 Budget (Note 6) $ $ $ Revenue City of Pickering grants 5,964,138 5,882,770 5,781,879 Federal grants 9,234 Province of Ontario grants 138,050 138,049 210,280 Fines and other receipts 176,500 136,720 152,398 6,278,688 6,166,773 6,144,557 Expenses Operating Salaries Salaries and wages Fringe benefits 35 X41 4,0 0,7; 3,440,087 3,483,038 916,264 970,148 4,356,351 4,453,186 Material, supplies and utilities Books Utilities Other supplies 225,0 294,02 3,250 572:278 234,355 208,582 219,266. 227,402 52,556 54,963 506,177 490,947 Services Repairs and maintenance Insurance t r� Travel Consulting and profess onal Advertising Conference k•: Postage Telephone Seminars and education Software/hardware maintenance Vehicle repairs and maintenance Minor capital purchases Miscellaneous 322,533 284,079 394,908 25,918 23,918 25,918 6,000 7,358 7,308 103,850 112,978 41,951 23,500 27,107 20,782 10,000 13,106 15,594 2,800 2,823 3,078 70,466 65,597 60,431 17,500 18,602 32,187 115,785 150,008 123,405 5,143 3,816 3,527 46,000 119,775 79,757 15,230 20,636 21,950 764,725 849,803 830,796 Amortization of tangible capital assets 463,283 466,629 473,083 6,391,027 6,178,960 6,248,012 Annual deficit (112,339) (12,187) (103,455) Accumulated surplus, beginning of year 1,042,172 1,042,172 1,145,627 Accumulated surplus, end of year 929,833 1,029,985 1,042,172 The accompanying notes to the financial statements are an integral part of this financial statement . Page 4 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Statement of change in net debt year ended December 31, 2018 2018 2017 Budget (Note 6) Annual deficit $ $ $ (112,339) (12,187) (103,455) Acquisition of tangible capital assets Amortization of tangible capital assets Acquisition of prepaid expenses Usage of prepaid expenses Change in prepaid expense (420,944) (465,952) (440,096) 463,283 466,629 473,083 42,339 677 32,987 (45,688) (37,453) 37,453 80,195 (8,235) 42,742 Change in net debt Net debt, beginning of year Net debt, end of year 70 000) 0,0A) (560,021) (19,745) (27,726) (000,021) (462,295) 009,766) (490,021) The accompanying notes to the financial statements are an integral part of this financial statement. Page 5 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Statement of cash flows year ended December 31, 2018 2018 2017 Operating transactions Annual deficit (12,187) (103,455) Non-cash items Amortization of tangible capital assets 466,629 473,083 454,442 369,628 Change in non-cash operating items Increase in accounts receivable Decrease in due from Government of Canada Decrease (increase) in due from City of Pickering Decrease in accounts payable and accrued liabilities (Decrease) increase in deferred revenue Increase in post -employment benefits liability (Increase) decrease in prepaid expense (961) (962) 3,592 477 24,525 (53,627) (4,128) (4,423) (14,793) 14,793 11,510 70,468 x_(8,235) 42,742 X11,510 69,468 465,952 439,096 Capital transactions Net acquisition of tangible capital assets Net change in cash Cash, beginning of year Cash, end of year (465,952) (440,096) (1,000) 1,225 2,225 1,225 1,225 TThe accompanying notes to the financial statements are an integral part of this financial statement. Page 6 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Notes to the financial statements December 31, 2018 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 less,accumulated-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 amo_ ized 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,'A, years to'7 years 0 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 tide Library_ buildings are owned by the City and are not reflected in these financial statements. (ii) Contribution/donation of tangs e 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 for retirement and 12 years for sick leave benefits. 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 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Notes to the financial statements December 31, 2018 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 amortization expense of 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 ployment extended healthcare benefits. Coverage ceases at the age of 65. The Library Board also p ovides full-time and permanent part-time employees a sick time entitlement, with any unfused entitleme t accumulated year to year. This accumulated entitlement is not vested and therefore is forfeited at the time of r irement or termination. The post -employment benefits obligation at December 31;,2018 and the changes in the accrued benefit obligation for the 2018 fiscal year was determined by actuarial valuation prepared as at December 31, 2017, with projection to December 31, 2018. Information about the Library Board's post -employment benefits liability is as follows: 2018 2017 Post -employment benefitshability, beginning of year 452,568 382,100 Current service costs - 30,062 44,147 Amortization of actuarial (gains) losses; (262) 18,900 Interest expense CA't5e 13,157 19,458 Benefits paid during fie year f (31,447) (12,037) Post -employment benefit)iability 464,078 452,568 2018 2017 Accrued post -employment benefits obligation 363,305 351,533 Unamortized actuarial gains 100,773 101,035 Post -employment benefits liability 464,078 452,568 The main actuarial assumptions employed in the actuarial valuation are as follows: a) Discount rate The present value as at December 31, 2018 of the future benefits was determined using a discount rate of 3.75% (2017 - 3.75%). b) Dental cost The dental cost trend rate was 3.75% (2017 - 3.75%) per annum. Page 8 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Notes to the financial statements December 31, 2018 2. Post -employment benefits liability (continued) c) Health costs Health costs were assumed to increase at 6.42% (2017 - 6.75%) and decrease by 0.33% (2017 - 0.33%) 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 496,000 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 investedassets to the estimated present value of all pension benefits that members have earned to-date.T-he Host recent actuarial valuation of the Plan was conducted as at December 31, 2018. The results of=t ih svaluation disclosed total actuarial liabilities as at that date of $100,081 million in respect of benefits accrued for service with actuarial assets at that date of $95,890 million indicating an actuarial deficit of $91 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 tit%v: Board does not recognize any share of the OMERS pension surplus or deficit. Contributions in the amount of $288,959 (2017 $278, #5 ) were paid to OMERS on behalf of its members during the year. 4. Tangible capital assets (TCA) Machinery Information Library Furniture Assets and technology collection and under equipment„ hardware materials fixtures construction 2018 $ $ $ $ $ $ Cost Balance, beginning of year 23,6 1 255,350 2,358,369 350,759 20,290 3,008,449 Additions during the year 46,498 366,812 72,932 486,242 Disposals/transfers to TCA during the year - - 474,319 - 20,290 494,609 Balance, end of year 23,681 301,848 2,250,862 423,691 - 3,000,082 Accumulated amortization Balance, beginning of year 10,546 129,978 1,224,942 148,243 - 1,513,709 Amortization 2,368 41,741 405,060 17,460 - 466,629 Accumulated amortization on disposals - - 474,319 - 474,319 Balance, end of year 12,914 171,719 1,155,683 165,703 - 1,506,019 Net book value 10,767 130,129 1,095,179 257,988 - 1,494,063 Page 9 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Notes to the financial statements December 31, 2018 4. Tangible capital assets (TCA) (continued) Machinery Information Library Furniture Assets and technology collection and under equipment hardware materials fixtures construction 2017 Cost Balance, beginning of year 23,681 204,157 2,466,112 329,648 - 3,023,598 Additions during the year Disposals/transfers to TCA during the year - . - 455 245 - - 455,245 Balance, end of year 23,681 255,350 2 369a ;30,759 20,290 3,008,449 51,193 347,502 21,111 20,290 440,096 Accumulated amortization Balance, beginning of year 8,178 98,883 1,252,2 =, 136,547 - 1,495,871 Amortization 2,368 31,095 427924 11,696 - 473,083 Accumulated amortization on disposals f" "= - 455245" - 455,245 Balance, end of year 10,546 129,978 1,224 342 148,243 - 1,513,709 Net book value 13,135 X125,372 1,1 3,427 202,516 20,290 1,494,740 5. Accumulated surplus <f, Accumulated surplus consists of the following: Invested in tangible capital assets Post -employment benefits liability 2018 2017 1,494,063 1,494,740 (464,078) (452,568) 1,029,985 1,042,172 Page 10 DRAFT AS AT 05/29/2019 City of Pickering Public Library Board Notes to the financial statements December 31, 2018 6. Budget figures The 2018 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 Canadian 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. Revenue City of Pickering Federal and provincial grants Fines and other receipts Expenditures Salaries and benefits Material, supplies and utilites Services Amortization 2018 Post -employment Council approved benefits / budget Amortization/ City Assets 2018 budget presented in statements Annual surplus (defier Capital expenditures/ additions (30,000) 70,000 463,283 5,964,138 138,050 176,500 6,278,688 4,590,741 572,278 764,725 463,283 5,857,744 533,283 6,391,027 450,944 (563,283) (112,339) (450,944) 30,000 (420,944) Page 11