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FIN 18-20
Report to Council Report Number: FIN 18-20 Date: December 14, 2020 From: Stan Karwowski Director, Finance & Treasurer Subject: 2019 Year End Audit Recommendation: 1. That the Report to Council on the 2019 Audit as submitted by Deloitte LLP (Deloitte) be received for information; and 2. That the 2019 draft Audited Consolidated Financial Statements for the City of Pickering be approved. Executive Summary: Attached to this report is the auditor’s Report to Council on the 2019 audit and the draft Audited Consolidated Financial Statements for the year ended December 31, 2019. 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. ______________________________________________________________________________ Financial Implications: The City’s financial position is healthy and strong and the City is able to meet its current financial commitments and in the future. It should also be noted that on page 10 of Deloitte’s Report to Council (Attachment 1), the auditor has reported that “the City is compliant with the provincially imposed debt limits as at December 31, 2019.” ______________________________________________________________________________ Discussion: On March 11, 2020, the World Health Organization declared the COVID-19 outbreak as a pandemic. In response to Provincial direction, all City facilities were shut down as of March 16, 2020. Since then, measures were put in place which limited City staff working on site as well as limited access by external consultants in order to reduce the spread of the virus. As a result, the City audit was delayed and Deloitte’s audit team had to work remotely in order to complete the audit. This delayed the 2019 Financial Statements not being presented until now. The audit of the consolidated financial statements for the year ended Decem ber 31, 2019 has now been completed. The auditor’s Report to Council is included as Attachment 1. This Report, prepared by Deloitte, summarizes its findings from the December 31, 2019 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 The Corporation of the City of Pickering | Table of contents 00 The Corporation of the City of Pickering Report to Council on the 2019 Audit For presentation on December 14, 2020 Attachment #1 to Report #FIN 18-20 Dear Council Members: 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 2019 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 presented on November 4, 2019. This report is intended solely for the information and use of the Council, management, and others within the City and is not intended to, and should not be, used by anyone other than these specified parties. Accordingly, we disclaim any responsibility to any other party who may rely on it. We would like to express our appreciation for the cooperation we received from management and the employees of the City with whom we worked to discharge our responsibilities. We look forward to discussing this report summarizing the outcome of our audit with you and to answering any questions which you may have. Yours truly, Chartered Professional Accountants Licensed Public Accountants Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca December 3, 2020 Private and confidential To the Members of Council The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Report on audited annual financial statements The Corporation of the City of Pickering | Table of contents i © Deloitte LLP and affiliated entities. Table of contents Our audits explained 2 Areas of audit risk 5 Significant accounting practices, judgments and estimates 7 Other reportable matters 9 Appendix 1 – Communication requirements 11 Appendix 2 – Independence letter 13 Appendix 3 – Draft management representation letter 14 The Corporation of the City of Pickering | Our audits explained 2 © Deloitte LLP and affiliated entities. Our audits explained This report summarizes the main findings arising from our audits. Audit scope and terms of engagement We have been engaged to perform the audits of the City’s, Library’s, and Trust Funds’ Financial Statements as at, and for the year ended, December 31, 2019 (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 for Professional Services dated October 17, 2019. Areas of audit risk Through our risk assessment process, we have identified the audit risks. These areas of risks 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 levels are based on professional judgment and was determined as follows: Consolidated financial statements for the City – approximately 3% of consolidated 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. Scope and terms of engagementMaterialityAreas of audit risk The Corporation of the City of Pickering | Our audits explained 3 © Deloitte LLP and affiliated entities. 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 outstanding audit procedures: Receipt of minor documentation items Receipt of signed management representations letters Receipt of legal responses, and Update of our subsequent events procedures. Uncorrected misstatements No uncorrected misstatements were identified. 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, taking into consideration the impacts of COVID-19 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. Internal controls During the course of our audits, we examined certain of the accounting procedures and key internal controls related to the financial reporting processes at the City, the Library Board and the Trust Funds. As a result of this examination, we did not identify any significant deficiencies in internal control. Uncorrected disclosure misstatements In accordance with Canadian GAAS, we request that all disclosure misstatements be corrected. There are no significant disclosure misstatements aggregated by us during the current engagement and pertaining to the latest period presented to report. Status and outstanding mattersGoing concernInternal controlsUncorrected misstatementsUncorrected disclosure misstatements The Corporation of the City of Pickering | Our audits explained 4 © Deloitte LLP and affiliated entities. 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. 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. 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 7 and 8 for further details. Conclusion In accordance with Canadian GAAS, our audits were designed to enable us to express an opinion on 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, 2019 once the outstanding items, referred to previously in this report, are completed satisfactorily and the financial statements are approved. Fraud riskSignificant accounting practices, judgments and estimatesIndependenceConclusion The Corporation of the City of Pickering | Areas of audit risk 5 © Deloitte LLP and affiliated entities. Areas of audit risk Revenue recognition* Significant audit risk Our audit response Audit results Canadian GAAS includes the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue). Certain revenue streams are a presumed area of significant 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 We performed substantive testing to determine if restricted contributions (i.e., development charges), and government transfers/grants had been recognized appropriately. (Revenue vs. deferred revenue). We obtained sufficient audit evidence in this area and are satisfied with the results of audit procedures performed. Management override of controls* Significant audit risk Our audit response Audit results 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. 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, identified using manual techniques. Our procedures did not indicate any evidence of management override of controls. *These areas were identified as areas of significant risk, as required by Canadian Auditing Standards. The Corporation of the City of Pickering | Areas of audit risk 6 © Deloitte LLP and affiliated entities. Merger of Veridian Corporation and Whitby Hydro Energy Corporation during fiscal 2019 and the City’s interest in Elexicon Corporation as at December 31, 2019 Audit risk Our audit response Audit results On April 1, 2019, Veridian Corporation and Whitby Hydro Energy Corporation amalgamated to form Elexicon Corporation, in which the City owns a 27.88% interest. There is a risk that the amalgamation transaction, including the City’s investment in Elexicon Corporation and any promissory notes outstanding associated with this investment, have not been properly accounted for or disclosed in the financial statements for the fiscal year ending December 31, 2019. Reviewed the merger agreements to understand the structure of the transaction and assessed the impact on the accounting in the City’s consolidated Financial Statements. Reviewed the legacy promissory notes previously issued to Veridian Corporation (that were transferred into Elexicon Corporation on formation) and ensured they have been properly accounted for. Ensured that the City’s interest in Elexicon Corporation has been properly disclosed in the financial statements. We obtained sufficient audit evidence in this area and are satisfied with the results of audit procedures performed. Implementation of new financial system Audit risk Our audit response Audit results The City is in the process of implementing a new financial system, SAP, which is expected to go live during fiscal 2020. Given the complexity associated with such a significant undertaking and the impact on numerous City departments, proper planning is critical to ensure implementation success and the proper conversion and migration of financial data. We obtained an understanding of the project scope for the systems implementation through discussion with Finance and IT management and assessed the implications on our audit strategy. We obtained an understanding of the City’s data conversion and migration plans from the current to the new system and assessed the impact on the extent of testing required. We discussed with management that the key considerations and audit trail, as part of a typical systems integration, have been factored into the project plan. We formulated our preliminary systems and data conversion testing plan. Our discussions with management indicated that the implementation of the new financial system has been delayed to 2021, due to the impacts of COVID-19. As communicated in the 2020 audit service plan presented on November 2, 2020, in conjunction with the 2020 audit, Deloitte will update its understanding of the project scope, data conversion and migration plans. We will formulate our preliminary systems and data conversion testing plan for the 2021 audit. The Corporation of the City of Pickering | Significant accounting practices, judgments and estimates 7 © Deloitte LLP and affiliated entities. 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 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 City 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 judgments and accounting estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. During 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 subledger, which resulted in an uncorrected misstatement of $1.27 million for the fiscal 2017 audit and $920K for the fiscal 2018 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 immaterial for fiscal 2019. 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. The Corporation of the City of Pickering | Significant accounting practices, judgments and estimates 8 © Deloitte LLP and affiliated entities. Significant accounting estimates include: 2019 2018 Post-employment benefits liability $6,871,681 $6,260,194 WSIB benefits liability $1,968,663 $1,917,179 Allowance for doubtful accounts $5,000 $5,000 Provision for property tax assessment appeals $1,447,381 $1,330,418 The Corporation of the City of Pickering | Other reportable matters 9 © Deloitte LLP and affiliated entities. 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 With the exception of the additional audit considerations arising as a result of the COVID-19 pandemic described below, the audit was conducted in accordance with our audit 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. COVID-19 pandemic considerations On March 11, 2020, the World Health Organization characterized the outbreak of a strain of the novel coronavirus (“COVID-19”) as a pandemic which has resulted in a serious of public health and emergency measures that have been put in place to combat the spread of the virus. The duration and impact of COVID-19 is unknown at this time and it is not possible to reliably estimate the impact that the length and severity of these developments will have on the financial results of the City in future periods. The following audit procedures were performed to address this situation as it relates to the 2019 audit: - Enquiry of the City’s management regarding the impact of this situation on the financial results or future financial results, such as: collectability of amounts receivable, valuation of investments and forecasted revenue and expenses for future periods. - Considered the effect of recent events on our risk assessment and planned audit procedures. The aforementioned did not result in changes to the risk assessment nor changes to planned audit procedures. Significant difficulties encountered in performing the audit Due to the COVID-19 physical distancing measures, the year-end audit evidence was provided electronically as the audit team worked remotely. We experienced some delays in the receipt of requested support electronically from management, which resulted in delays related to audit timing. Related party transactions Related party transactions and 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. The Corporation of the City of Pickering | Other reportable matters 10 © Deloitte LLP and affiliated entities. Comment Consultation with other accountants Management has informed us that the City, the Library Board and the Trust Funds 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. In addition, the City is compliant with the provincially imposed debt limits as at December 31, 2019. 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 COVID-19, as disclosed in Note 20 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 as at December 31, 2019. The Corporation of the City of Pickering | Appendix 1 – Communication requirements 11 © Deloitte LLP and affiliated entities. 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 17, 2019 2. An overview of the overall audit strategy, addressing: a. Timing of the audit b. Significant risks, including fraud risks, and c. Planned responsibilities of other independent public accounting firms or others that perform audit procedures in the audit. Audit service plan presented to the Executive Committee on November 4, 2019 We received the reporting requested from the independent auditor of Elexicon 3. Significant transactions outside of the normal course of business, including related party transactions None noted Enquiries of those charged with governance 4. How those charged with governance exercise oversight over management’s process for identifying and responding to the risk of fraud and the internal control that management has established to mitigate these risks Covered when presenting the Audit service plan 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 7 and 8 9. Alternative treatments for accounting policies and practices that have been discussed with management during the current audit period Nothing of significance 10. Matters related to going concern None noted 11. Management judgments and accounting estimates See pages 7 and 8 The Corporation of the City of Pickering | Appendix 1 – Communication requirements 12 © Deloitte LLP and affiliated entities. Required communication Comments 12. Significant difficulties, if any, encountered during the audit None 13. Material written communications between management and us, including management representation letters Management representation letter is 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 accountants and about which we have concerns We are not aware of any such consultations 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 financial statements No significant deficiencies noted 20. Uncorrected misstatements and disclosure items None noted 21. Any significant matters arising during the audit in connection with the City’s related parties None noted The Corporation of the City of Pickering | Appendix 2 – Independence letter 13 © Deloitte LLP and affiliated entities. Appendix 2 – 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 December 3, 2020 Private and confidential The Members of Council The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Dear Council Members, 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, 2019. You have requested that we communicate in writing with you regarding our compliance with relevant ethical requirements regarding independence as well as all relationships and other matters between the City, our Firm and network firms that, in our professional judgment, may reasonably be thought to bear on our independence. You have also requested us to communicate the related safeguards that have been applied to eliminate identified threats to independence or reduce them to an acceptable level. In determining which relationships to report, we have considered relevant rules and related interpretations prescribed by the appropriate provincial regulator/ordre and applicable legislation, covering such matters as: a.Holding a financial interest, either directly or indirectly, in a client. b.Holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client. c.Personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client. d.Economic dependence on a client. e.Provision of services in addition to the audit engagement. We confirm to you that the engagement team and others in the firm as appropriate, the firm and, when applicable, network firms have complied with relevant ethical requirements regarding independence. We have prepared the following comments to facilitate our discussion with you regarding independence matters arising since May 21, 2019, the date of our last letter. Deloitte provided the following non-audit services between May 21, 2019 and December 3, 2020: Soccer Facility Analysis Service Delivery Review 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 21, 2019 to December 3, 2020. The Corporation of the City of Pickering December 3, 2020 Page 2 We hereby confirm that we are independent with respect to the City in accordance with the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario as of December 3, 2020. This letter is intended solely for the information and use of the Council, management, and others within the City and is not intended to be and should not be used for any other purposes. Yours truly, Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering | Appendix 3 – Draft management representation letter 14 © Deloitte LLP and affiliated entities. Appendix 3 – Draft management representation letter Draft Dear Ms. Colavecchia: This representation letter is provided in connection with the audit by Deloitte LLP (“Deloitte” or “you”) of the consolidated financial statements of The Corporation of the City of Pickering (the “City” or “we” or “us”) as of and for the year ended December 31, 2019, the notes to the consolidated financial statements and a summary of significant accounting policies (the “Financial Statements”) 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”). Certain representations in this letter are described as being limited to matters that are material. Items are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves: Financial statements 1.We have fulfilled our responsibilities as set out in the terms of the engagement letter between the City and Deloitte dated October 17, 2019 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, 2019 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 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 City. No events have occurred subsequent to December 31, 2019 that require adjustment to the estimates and disclosures included in the Financial Statements. [City letterhead] December 14, 2020 Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Subject: Consolidated financial statements of The Corporation of the City of Pickering for the year ended December 31, 2019 Draft Deloitte LLP December 14, 2020 Page 2 There are no changes in management’s method of determining significant estimates in the current year. 3.We have determined that the Financial Statements are complete as of the date of this letter as this is the date when there are no changes to the Financial Statements (including disclosures) planned or expected. The Financial Statements have been approved in accordance with our process to finalize financial statements. 4.We have completed our review of events after December 31, 2019 and up to the date of this letter. 5.The Financial Statements are free of material errors and omissions. Internal controls 6.We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud and error. 7.We have disclosed to you all known deficiencies in the design 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. We have disclosed to you any change in the City’s internal control over financial reporting that occurred during the current year that has materially affected, or is reasonably likely to materially affect, the City’s internal control over financial reporting. Information provided 8.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; c.Unrestricted access to persons within the City from whom you determined it necessary to obtain audit evidence; and, d.Unrestricted access to all minutes of the meetings of Council and committees of Council, or summaries of actions of recent meetings for which minutes have not yet been prepared. All significant Coundil and committee actions are included in the summaries. 9.We have disclosed to you the results of our assessment of the risk that the Financial Statements may be materially misstated as a result of fraud. 10.We have disclosed to you all information in relation to fraud or suspected fraud that we are aware of and that affects the City and involves: a.Management; b.Employees who have significant roles in internal control; or c.Others where the fraud could have a material effect on the Financial Statements. 11.We have disclosed to you all information in relation to allegations of actual, suspected or alleged fraud, or illegal or suspected illegal acts affecting the City.Draft Deloitte LLP December 14, 2020 Page 3 12.There have been no communications with regulatory agencies concerning actual or potential noncompliance with or deficiencies in financial reporting practices. There are also no known or possible instances of non-compliance with the requirements of regulatory or governmental authorities. 13.We have disclosed to you the identities of the City’s related parties and all the related party relationships and transactions of which we are aware, including guarantees, non-monetary transactions and transactions for no consideration and participation in a defined benefit plan that shares risks between group entities. Independence matters For purposes of the following paragraphs, “Deloitte” shall mean Deloitte LLP and Deloitte Touche Tohmatsu Limited, including related member firms and affiliates. 14.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 City Council. 15.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 pre-approval requirements, as applicable. 16.We have ensured that all services performed by Deloitte with respect to this engagement have been pre-approved by the Executive Committee of City Council in accordance with its established approval policies and procedures including the City’s procurement policies. Other matters 17.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. Except where otherwise stated below, immaterial matters less than $125,000 collectively are not considered to be exceptions that require disclosure for the purpose of the following representations. This amount is not necessarily indicative of amounts that would require adjustment to or disclosure in the Financial Statements. 18.All transactions have been properly recorded in the accounting records and are reflected in the Financial Statements. 19.The City has identified all related parties in accordance with Section PS 2200, Related Party Disclosures (“PS 2200”). Management has made the appropriate disclosures with respect to its related party transactions in accordance with PS 2200. This assessment is based on all relevant factors, including those listed in para. 16 of PS2200. 20.There are no instances of identified or suspected noncompliance with laws and regulations. 21.We have disclosed to you all known, actual or possible litigation and claims, whether or not they have been discussed with our lawyers, whose effects should be considered when preparing the Financial Statements. As appropriate, these items have been disclosed and accounted for in the Financial Statements in accordance with PSAS.Draft Deloitte LLP December 14, 2020 Page 4 22.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. 23.We have disclosed to you all liabilities, provisions, contingent liabilities and contingent assets, including those associated with guarantees, whether written or oral, and they are appropriately reflected in the Financial Statements. 24.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. 25.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. Communications with taxation and regulatory agencies 26.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. Work of management’s experts 27.We agree with the work of management’s experts in evaluating the valuation of post-employment benefits liability and WSIB benefits liability and have adequately considered the capabilities of the experts in determining amounts and disclosures used in the Financial Statements and underlying accounting records. We did not give any, nor cause any, instructions to be given to management’s experts with respect to values or amounts derived in an attempt to bias their work, and we are not aware of any matters that have impacted the independence or objectivity of the experts. Loans and receivables 28.The City is responsible for determining and maintaining the adequacy of the allowance for doubtful notes, loans, and accounts receivable, as well as estimates used to determine such amounts. Management believes the allowances are adequate to absorb currently estimated bad debts in the account balances. Employee future benefits 29.Employee future benefit costs, assets, and obligations have been properly recorded and adequately disclosed in the Financial Statements including those arising under defined benefit plans as well as termination arrangements. We believe that the actuarial assumptions and methods used to measure defined benefit plan assets, liabilities and costs for financial accounting purposes are appropriate in the circumstances. Government transfers 30.We have disclosed to you all correspondence relating to government transfers that the City has had with the funding body.Draft Deloitte LLP December 14, 2020 Page 5 31.We have assessed the eligibility criteria and determined that the City is an eligible recipient for the government transfers received. 32.We have assessed the stipulations attached with the funding and have recognized the revenue in accordance with meeting the stipulations required. 33.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 34.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 35.Tangible capital assets have been recorded properly and consistently according to the standards in Section PS 3150, Tangible Capital Assets. 36.Contributed tangible capital assets have been appropriately recorded at fair value, unless fair value is not reasonably determinable, and in such case, have been recorded at an appropriate nominal value. All contributed tangible capital assets have been appropriately disclosed. 37.We have assessed the useful lives of tangible capital assets and have determined all tangible capital assets contribute to the City’s ability to provide goods and services and therefore do not require a write down. Environmental liabilities/contingencies 38.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. Government Business Enterprises 39.The City has appropriately classified its investments in Elexicon as a Government Business Enterprise. With regard to the City’s investment in Elexicon, we have disclosed to you any events that have occurred and facts that have been discovered with respect to such investment that would affect the investment’s value as reported in the financial statements.Draft Deloitte LLP December 14, 2020 Page 6 Liabilities for contaminated sites 40.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. Yours truly, The Corporation of the City of Pickering Stan Karwowski Director of Finance and Treasurer Marisa Carpino Interim Chief Administrative Officer Draft Consolidated financial statements of The Corporation of the City of Pickering December 31, 2019 DraftAttachment #2 to Report #FIN 18-20 Independent Auditor’s Report 1–2 Consolidated statement of financial position 3 Consolidated statement of operations 4 Consolidated statement of change in net financial assets 5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 7–29 Draft Independent Auditor’s Report To the Members of Council of The Corporation of the City of Pickering 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, 2019, 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, 2019, 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. Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Draft 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 December 14, 2020 Draft The Corporation of the City of Pickering Consolidated statement of financial position As at December 31, 2019 2019 2018 Notes $$ Financial assets Cash and cash equivalents 109,398,651 100,619,531 Investments 3 67,962,213 78,380,565 Taxes receivable 20,714,593 19,340,620 Accounts receivable 4,612,282 4,192,551 Note receivable 17 3,255,916 3,530,086 Investment in government business enterprise 4 (c)68,264,803 56,516,836 Promissory notes receivable 5 25,069,000 25,069,000 Land held for resale 10(v)— 4,144,903 299,277,458 291,794,092 Liabilities Accounts payable and accrued liabilities 26,038,475 32,564,636 Other current liabilities 170,507 1,300,332 Deferred revenue 6 84,272,006 77,482,928 Long-term liabilities 9 30,819,986 29,418,973 Post-employment benefit liability 8 (a)6,871,681 6,260,194 WSIB benefit liabilities 8 (b)1,968,663 1,917,179 150,141,318 148,944,242 Net financial assets 149,136,140 142,849,850 Non-financial assets Tangible capital assets 10 273,099,664 259,879,354 Prepaid expenses 2,033,298 231,462 Inventory 484,538 372,227 275,617,500 260,483,043 Accumulated surplus 11 424,753,640 403,332,893 The accompanying notes are an integral part of the consolidated financial statements. Approved by the Board - _______________________________, Director _______________________________, Director Page 3Draft The Corporation of the City of Pickering Consolidated statement of operations Year ended December 31, 2019 Budget 2019 2018 (Note 18)Actual Actual Notes $$$ Revenue Residential and farm taxation 52,542,863 53,264,567 50,047,871 Commercial and industrial taxation 11,436,546 11,322,827 11,088,267 Taxation from other governments 8,186,062 8,272,139 8,460,282 User charges 12,134,605 14,363,170 15,190,523 Government grants and fees 16,885,364 5,005,505 5,554,251 Other contributions and donations 11,761,400 1,346,399 5,230,490 Development charges and developer contributions earned 12,036,350 4,884,843 3,334,550 Contributed tangible capital assets 10(i)— 359,732 995,033 Investment income 540,000 2,084,515 1,875,542 Penalties and interests on taxes 2,265,000 2,907,048 2,568,692 Fines 857,000 973,255 884,224 Interest on promissory notes 5(c)1,229,138 1,083,797 1,229,138 Sale of land 12,000,000 113,001 — Income from government business enterprise 4(b)— 1,345,259 5,050,712 Change in valuation of investment in government business enterprise on amalgamation 4(b)— 12,849,416 — Other 344,578 891,874 900,306 142,218,906 121,067,347 112,409,881 Expenses 19 General government 19,925,128 20,311,428 17,065,742 Protection to persons and property 27,357,746 26,308,172 24,761,169 Transportation services 17,385,420 14,667,697 12,728,165 Environmental services 3,495,632 2,672,331 3,452,661 Social and family services 1,033,141 907,917 780,850 Recreational and cultural services 29,313,497 29,001,910 28,680,931 Planning and development 3,944,861 3,200,426 3,050,084 Loss on disposal of tangible capital assets — 2,576,719 246,005 102,455,425 99,646,600 90,765,607 Annual surplus 39,763,481 21,420,747 21,644,274 Accumulated surplus, beginning of year 403,332,893 403,332,893 381,688,619 Accumulated surplus, end of year 443,096,374 424,753,640 403,332,893 The accompanying notes are an integral part of the consolidated financial statements. Page 4Draft The Corporation of the City of Pickering Consolidated statement of change in net financial assets Year ended December 31, 2019 Budget 2019 2018 (Note 18) Actual Actual $$$ Annual surplus 39,763,481 21,420,747 21,644,274 Acquisition of tangible capital assets (72,724,776) (53,394,975) (37,520,480) Amortization of tangible capital assets 11,139,146 12,162,640 12,480,087 Loss on disposal of tangible capital assets — 2,576,719 246,005 Proceeds on disposal of tangible capital assets — 385,334 137,444 (21,822,149) (16,849,535) (3,012,670) Transfer of assets under construction to tangible capital assets — 24,913,528 4,952,232 Assets under construction expensed — 136,444 82,345 — 25,049,972 5,034,577 Acquisition of inventory of supplies — (794,130) (700,163) Use of inventory of supplies — 681,819 755,268 Acquisition of prepaid expenses — (2,024,710) (231,462) Use of prepaid expenses — 222,874 295,196 — (1,914,147) 118,839 Change in net financial assets (21,822,149) 6,286,290 2,140,746 Net financial assets, beginning of year 142,849,850 142,849,850 140,709,104 Net financial assets, end of year 121,027,701 149,136,140 142,849,850 The accompanying notes are an integral part of the consolidated financial statements. Page 5Draft The Corporation of the City of Pickering Consolidated statement of cash flows Year ended December 31, 2019 2019 2018 $$ Operating transactions Annual surplus 21,420,747 21,644,274 Non-cash items Amortization of tangible capital assets 12,162,640 12,480,087 Loss on disposal of tangible capital assets 2,576,719 246,005 Income from government business enterprise (1,345,259) (5,050,712) Change in valuation of investment in government business enterprise on amalgamation (12,849,416) — Contributed tangible capital assets recorded in revenue (359,732) (995,033) Change in non-cash operating items Taxes receivable (1,373,973) (2,769,229) Accounts receivable (419,731) 587,779 Accounts payable and accrued liabilities (6,526,161) 6,150,073 Other current liabilities (1,129,825) (3,394,206) Deferred revenue 6,789,078 12,288,515 Post-employment benefit liability 611,487 650,538 WSIB benefit liabilities 51,484 54,303 Inventory (112,311) 55,105 Land held for resale 4,144,903 (3,850,372) Prepaid expenses (1,801,836) 63,734 21,838,814 38,160,861 Capital transactions Acquisition of tangible capital assets (net of transfers and contributions)(27,985,271) (31,490,870) Proceeds on disposal of tangible capital assets 385,334 137,444 (27,599,937) (31,353,426) Investing transactions Decrease in investments 10,418,352 3,845,503 Dividends received from Elexicon Corporation and Veridian Corporation 2,446,708 1,927,000 12,865,060 5,772,503 Financing transactions Proceeds from debentures issued 4,531,000 3,604,000 Principal repayment of debentures (3,129,987) (5,598,009) Decrease in note receivable 274,170 266,860 1,675,183 (1,727,149) Increase in cash and cash equivalents 8,779,120 10,852,789 Cash and cash equivalents, beginning of year 100,619,531 89,766,742 Cash and cash equivalents, end of year 109,398,651 100,619,531 Cash and cash equivalents consists of Cash 11,245,966 16,110,036 Cash equivalents 98,152,685 84,509,495 109,398,651 100,619,531 The accompanying notes are an integral part of the consolidated financial statements. Page 6Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 7 1. Significant accounting policies The consolidated financial statements (the “financial statements”) of The Corporation of the City of Pickering (the “City”) are the representations of management prepared in accordance with accounting standards established by the Public Sector Accounting Board (“PSAB”) of Chartered Professional Accountants of Canada (CPA Canada). Significant accounting policies adopted by the City are as follows: (a) Reporting entity (i) Consolidated financial statements The consolidated financial statements reflect the assets, liabilities, revenues and expenses of the reporting entity. The reporting entity is comprised of the activities of all committees of Council and the City of Pickering Public Library Board which is controlled by the City. All material inter-fund transactions and balances are eliminated on consolidation. (ii) Investment in government business enterprise The City’s investment in Elexicon Corporation (formerly Veridian Corporation until March 31, 2019) is accounted for on a modified equity basis, consistent with Canadian public sector accounting standards for investments in government business enterprises. Under the modified equity basis, Elexicon Corporation’s accounting policies are not adjusted to conform to those of the City and inter-organizational transactions and balances are not eliminated. The City recognizes its equity interest in the annual earnings or loss of Elexicon Corporation in its Consolidated Statement of Operations with a corresponding increase or decrease in its investment asset account. Dividends that the City may receive from Elexicon Corporation and other capital transactions are reflected as adjustments in the investment asset account. (iii) Operations of School Boards and the Regional Municipality of Durham The taxation, other revenues, expenses, assets and liabilities with respect to the operations of the school boards and the Regional Municipality of Durham (the “Region”) are not reflected in these consolidated financial statements. (iv) Trust funds Trust funds and their related operations administered by the City are not consolidated, but are reported separately on the Trust Funds Statement of Financial Activities and Fund Balance and Statement of Financial Position. (b) Basis of accounting (i) Accrual basis of accounting Revenue and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they are earned and measurable; expenses are recognized as they are incurred and measurable as a result of the receipt of goods and services and the creation of a legal obligation to pay. (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. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 8 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 Tangible capital assets are recorded at cost less accumulated amortization. Cost includes all costs directly related to the acquisition or construction of the tangible capital asset including transportation costs, installation costs, design and engineering fees, legal fees and site preparation costs. Amortization is recorded on the straight- line basis over the estimated useful life of the tangible capital asset commencing once the asset is available for use as follows: Buildings 5 to 50 years Machinery and equipment various Vehicles 7 to 15 years Infrastructure - Roads 10 to 75 years Infrastructure - Storm sewers 50 to 100 years Infrastructure - Sidewalks 15 to 75 years Infrastructure - Parks 10 to 100 years Information technology hardware 4 to 10 years Library collection materials 4 to 7 years Furniture and fixtures various One half of the annual amortization is charged in the year of acquisition and in the year of disposal. Assets under construction are not amortized until the tangible capital asset is available for productive use. Land is not amortized. Tangible capital assets received as contributions are recorded at their fair value at the date contributed, with the corresponding amount recorded as revenue. (v) Accounting for Property 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 revenue represents 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 revenue 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 City’s actuary determined the 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 ARSP of 15 years. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 9 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 Tax revenue is recognized on all taxable properties within the City that are included in the tax roll provided by the Municipal Property Assessment Corporation, using property tax values included in the tax roll or property tax values that can be reasonably estimated by the City as it relates to supplementary or omitted assessments, at tax rates authorized by Council for the City’s own purposes in the period for which the tax is levied. (xi) Intangible assets Intangible assets are not recognized as assets in the financial statements. (xii) Contaminated sites Contaminated sites are the result of contamination being introduced into air, soil, water or sediment of a chemical, organic, or radioactive 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; (b) contamination exceeds the environmental standard; (c) the City is directly responsible or accepts responsibility for the liability; (d) future economic benefits will be given up; and (e) a reasonable estimate of the liability can be made. A liability is recorded only 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 meets 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. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 10 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 1(a)(iii), requisitions are made by the Regional 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 remitted are summarized as follows: 2019 2018 Region School board Region School board $$$$ Taxation 116,785,587 48,958,047 111,062,448 47,323,546 Payments in lieu of taxes 6,038,586 369,346 6,260,991 380,526 122,824,173 49,327,393 117,323,439 47,704,072 3. Investments 2019 2018 Cost Market value Cost Marlet value $$$$ Investments 67,962,213 68,033,818 78,380,565 78,041,001 Investments are comprised of deposit notes, bonds, and guaranteed investment certificates. 4. Investment in government business enterprise (a) Until March 31, 2019, the City held a 41% interest in Veridian Corporation, which was owned by the City of Pickering, Town of Ajax, Municipality of Clarington, and the City of Belleville. Effective April 1, 2019, Veridian Corporation amalgamated with Whitby Hydro Electric Corporation to form Elexicon Corporation. Elexicon Corporation is owned by the legacy owners of Veridian Corporation, and the Town of Whitby. The City holds a 27.88% interest in Elexicon Corporation. Elexicon Corporation, as a government business enterprise, is accounted for on the modified equity basis in these financial statements. Elexicon Corporation serves as the electrical distribution utility for a number of communities including the five noted above and conducts non-regulated utility service ventures through its subsidiaries. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 11 4. Investment in government business enterprise (continued) (a) (continued) The following table provides condensed supplementary consolidated financial information for Elexicon Corporation and its subsidiaries as at and for the nine-month period ended December 31, 2019 (year ended December 31, 2018 in 2018). The amounts are disclosed in thousands of dollars: 2019 2018 (000’s)(000’s) $$ Assets Current 84,933 70,908 Capital and intangibles 506,254 291,057 Other 256 166 Total assets 591,443 362,131 Regulatory balances 15,145 7,217 Total assets and reg ulatory balances 606,588 369,348 Liabilities Current 87,413 152,979 Long-term debt 180,360 37,132 Other 91,408 33,310 Total liabilities 359,181 223,421 Shareholders’ equity Share capital 97,692 67,260 Contributed capital 25 25 2019 Contributed Surplus 79,301 — Accumulated other comprehensive loss (816) (53) Retained earnings 68,597 70,537 Total equity 244,799 137,769 Regulatory balances 2,608 8,158 Total liabilities , e q uity and regulatory balances 606,588 369,348 9 months ended Year ended Dec 31, 2019 Dec 31, 2018 (000's)(000's) $$ Comprehensive Income Commodity revenue 305,445 266,543 Commodity expenses (311,627) (269,157) Distribution revenue 58,759 54,254 Operating expenses (49,195) (42,200) Other expense (5,253) (3,333) Accumulated other comprehensive loss (500) 263 Net movements in regulatory balances, net of tax 9,180 5,949 Total comprehensive income for the year 6,809 12,319 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 12 4. Investment in government business enterprise (continued) (a) (continued) Financial information for Veridian Corporation for the period January 1 to March 31, 2019 are as follows: January 1 to March 31, 2019 (000’s) $ Comprehensive Income Commodity revenue 66,011 Commodity expenses (68,925) Distribution revenue 13,691 Operating expenses (13,259) Other expense (1,507) Accumulated other comprehensive loss (263) Net movements in regulatory balances, net of tax 2,903 Total comprehensive income for the period (1,349) (b) Equity in Elexicon Corporation and amalgamation adjustments The amalgamation of Veridian Corporation and Whitby Hydro Electric Corporation was accounted for as an acquisition by legacy Veridian Corporation. On amalgamation, the change in the City’s ownership percentage as well as the issuance of additional shares resulted in the following amalgamation adjustments: $ Change in investment valuation due to decrease in ownership percentage on amalgamation (17,744,144) Increase in share valuation on amalgamation 30,593,560 Total amalgamation adjustments 12,849,416 The City’s equity in Elexicon Corporation is as follows at the end of 2019: 2019 2018 $$ Balance, beginning of year 84,628,856 81,505,144 Equity share of net loss for the three month period ended March 31, 2019 from Veridian Corporation (year ended December 31, 2018)(553,090) 5,050,712 Equity share of net earnings for the period April 1, 2019 to December 31, 2019 from Elexicon Corporation 1,898,349 — Amalgamation adjustments 12,849,416 — Dividend received (2,446,708) (1,927,000) Balance, end of year 96,376,823 84,628,856 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 13 4. Investment in government business enterprise (continued) (c) City of Pickering’s investment is represented by: 2019 2018 $$ Promissory notes receivable (Note 5)25,069,000 25,069,000 Investments in Elexicon Corporation (formerly Veridian) Initial investment in shares of the Corporation 30,496,196 30,496,196 Amalgamation adjustments 12,849,416 — Accumulated earnings 56,975,653 55,630,394 Accumulated dividends received (32,872,170) (30,425,462) Adjustment to value of investment 815,708 815,708 68,264,803 56,516,836 (d) Contingencies and guarantees of Elexicon Corporation (the “Corporation”) as disclosed in their consolidated financial statements are as follows: (i) Insurance claims The Corporation is a member of the Municipal Electric Association Reciprocal Insurance Exchange (“MEARIE”) which was created on January 1, 1987. A reciprocal insurance exchange may be defined as a group of persons formed for the purpose of exchanging reciprocal contracts of 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 $164,885,000 for property insurance, plus $10,000,000 excess coverage on top of the regular liability and vehicle coverage. (ii) Contractual obligation - Hydro One Networks Inc. (“HONI”) The Corporation’s subsidiary, Elexicon Energy Inc. (“EEI”) (formerly Veridian Connections Inc.), is party to a connection and cost recovery agreement with HONI related to the construction by HONI of a transformer station designated to meet EEI’s anticipated electricity load growth. Construction of the project was completed during 2007 and EEI connected to the transformer station during 2008. To the extent that the cost of the project is not recoverable from future transformation connection revenues, EEI is obligated to pay a capital contribution equal to the difference between these revenues and the construction costs allocated to EEI. The construction costs allocated to EEI for the project are $19,950,000. Hydro One has performed a true-up based on actual load at the end of the tenth anniversary of the in-service date and the Corporation has paid $637,000 to Hydro One and recognized the same as an intangible asset. The Corporation has also recorded a current liability and a corresponding intangible asset for $1,533,000 as at December 31, 2019, based on management’s best estimate of the future transformation connection revenues shortfall. Hydro One is expected to perform another true-up based on actual load at the end of the fifteenth anniversary of the in-service date. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 14 4. Investment in government business enterprise (continued) (d) (continued) (iii) Prudential Support Purchasers of electricity in Ontario, through the Independent Electricity System Operator (“IESO”), are required to provide security to mitigate the risk of default based on their expected activity in the market. The IESO could draw on this security if the Corporation fails to make the payment required on a default notice issued by the IESO. The Corporation has provided a $64,000,000 guarantee to the IESO on behalf of EEI. Additionally, the Corporation has provided a $6,900,000 letter of credit to the IESO for prudential support. (iv) General claims From time to time, the Corporation is involved in various lawsuits, claims and regulatory proceedings in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Corporation’s consolidated financial position and results of operations or cash flows. (e) Lease commitments Future minimum lease payment obligations under operating leases are as follows: $ 2020 475,000 2021 363,000 2022 229,000 2023 179,000 2024 124,000 Thereafter 210,000 1,580,000 5. Promissory notes receivable 2019 2018 $$ Elexicon Corporation (formerly Veridian Corporation)7,095,000 7,095,000 Elexicon Energy Inc. (formerly Veridian Connections Inc.)17,974,000 17,974,000 25,069,000 25,069,000 (a) Maturity The promissory notes were issued by the legacy Veridian Corporation and Veridian Connections Inc. and were assumed by Elexicon Corporation and Elexicon Energy Inc. upon amalgamation on April 1, 2019. The promissory notes under Elexicon Corporation and Elexicon Energy Inc. are due on demand. The City has agreed not to demand repayment of the notes prior to December 31, 2020. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 15 5. Promissory notes receivable (continued) (b) Interest Rate Commencing April 1, 2019 for a ten-year period, interest on the notes will be determined based on the deemed long-term interest rate prescribed by the Ontario Energy Board in its most recent cost of capital parameter update (“OEB rate”). As of April 1, 2019, the OEB rate was determined at 4.13%. On the tenth year anniversary of the note, the interest rate will be adjusted to the OEB rate in effect at that time. Thereafter, the interest rate will be adjusted to the OEB rate in effect at the earlier of: (i) The five year anniversary of the most recent interest rate adjustment of these notes, and (ii) The date on which Elexicon Energy Inc. files a cost of service application with the Ontario Energy Board. The City may demand full or partial repayment with sixty days’ notice of the principal and accrued interest. (c) Interest revenue Interest revenue earned from these notes receivable totaled $1,083,797 ($1,229,138 in 2018). 6. Deferred revenue 2019 2018 $$ Obligatory reserve funds Development charges 62,598,255 58,789,415 Parkland 7,385,482 6,463,242 Federal gas tax 7,680,187 5,310,843 Third party/Developer's contributions reserve fund 2,724,805 2,790,108 80,388,729 73,353,608 Other unearned revenues 3,883,277 4,129,320 84,272,006 77,482,928 Continuity of deferred revenue is as follows: 2019 2018 $$ Balance, beginning of year 77,482,928 65,194,413 Restricted funds received 13,992,779 20,092,304 General funds received 513,922 896,508 Interest earned (restricted funds)1,559,577 1,064,773 16,066,278 22,053,585 Earned restricted revenue transferred to operations 8,517,235 9,189,639 Earned revenue transferred to operations 759,965 575,431 9,277,200 9,765,070 Balance , end of year 84,272,006 77,482,928 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 16 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: 2019 2018 $$ Roads 434,074 564,296 Community facilities, libraries and parks 561,212 815,139 Protection services 254,792 296,535 Stormwater system 261,985 310,829 1 ,512,063 1,986,799 8. Post-employment benefits liability (a) Post-employment benefits liability The City makes available to qualifying employees who retire before the age of 65, the opportunity to continue their coverage for benefits such as post-retirement extended healthcare benefits. Coverage ceases at the age of 65. The City also provides full time and permanent part-time employees a sick time entitlement and any unused entitlement is accumulated year to year. This accumulated entitlement is not vested and is forfeited at the time of retirement or termination. The most recent actuarial valuation of the post- employment benefits was performed at December 31, 2018, with a projection to December 31, 2019. Information about the City’s benefits liability is as follows: 2019 2018 $$ Accrued benefits liability, beginnin g of year 6,260,194 5,609,656 Current service costs 566,466 535,285 Interest on accrued benefits 415,007 411,606 Amortization of actuarial losses 538,257 538,856 Benefits paid during the year (908,243) (835,209) Accrued benefits liability, end of year 6,871,681 6,260,194 Accrued benefit obligation 11,310,985 11,237,755 Unamortized actuarial losses (4,439,304) (4,977,561) Accrued benefits liability, end of year 6,871,681 6,260,194 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 17 8. Post-employment benefits liability (continue) (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, 2019 of the future benefits was determined using a discount rate of 3.75% (3.75% in 2018). (ii) Dental costs The dental cost trend rate was 3.75% (3.75% in 2018) increase per annum. (iii) Health costs Health costs were assumed to increase at 6.09% (6.42% in 2018) and decrease by 0.33% (0.33% in 2018) increments per year to an ultimate rate of 3.75% per year in 2027 and thereafter. (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities Effective January 1, 2001, the City became a Schedule II employer under the Workplace Safety & Insurance Act and follows a policy of self-insurance for the risk associated with paying benefits for workplace injuries for all its employees. The WSIB administers the claims related to workplace injuries and is reimbursed by the City. The most recent actuarial valuation of the WSIB benefits was performed at December 31, 2016, with a projection to December 31, 2019. Information about the City’s WSIB benefit liability is as follows: 2019 2018 $$ Accrued WSIB liability, beginning of year 1,917,179 1,862,876 Current service cost 132,391 128,519 Interest on accrued benefits 91,023 90,135 Amortization of actuarial losses 30,254 30,254 Benefits paid during the year (202,184) (194,605) 1 ,968,663 1,917,179 Accrued benefit obligation 2,331,706 2,310,476 Unamortized actuarial losses (363,043) (393,297) Accrued benefits liabilit y, end of year 1,968,663 1,917,179 The main actuarial assumptions employed in the actuarial valuations are as follows: (i) Discount rate The present value as at December 31, 2019 of the future benefits was determined using a discount rate of 4.0% (4.0% in 2018). (ii) Inflation rate The rate of inflation was assumed to be 1.75% (1.75% in 2018) per annum. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 18 8. Post-employment benefits liability (continued) (b) Workplace Safety and Insurance Board (WSIB) benefit liabilities (continued) (iii) WSIB Administration Rate Liabilities for WSIB benefits have been increased 38% to reflect the administration rate charged by WSIB. A WSIB Reserve Fund was established in 2001. The Reserve Fund balance as at December 31, 2019 (Note 11) was $3,930,110 ($3,548,321 as at December 31, 2018). In addition, the City purchased two insurance policies that protect the City against significant claims. The occupational accident insurance pays loss claims up to $500,000 per work related accident. The excess workers compensation indemnity insurance has a $500,000 deductible and will pay for claims up to and including $15,000,000 per work related accident. 9. Long-term liabilities (a) The balance of long-term liabilities is made up of the following: 2019 2018 $$ The City is responsible for the payment of principal and interest charges on long-term liabilities issued by the Regional Municipality of Durham on the City's behalf. At the end of the year the outstanding principal amount of this liability is 30,819,986 29,418,973 (b) The above long-term liabilities have maturity dates of July 12, 2021 and 2022, October 15, 2020, September 29, 2021, October 16, 2023, July 2, 2029, October 17, 2021, 2026 and 2031, October 13, 2022, 2027, 2032 and 2037, September 14, 2023, 2028, 2033 and 2038 and November 29, 2024, 2029 and 2039 with various interest rates ranging from 1.10% to 5.12%. Principal repayments are summarized as follows: $ 2020 3,557,344 2021 3,763,385 2022 2,806,998 2023 2,614,596 2024 2,124,801 Thereafter 15,952,862 30,819,986 (c) Long-term liabilities include principal sums of $952,000 ($952,000 in 2018) which may be refinanced by the issuance of debentures over a further period not to exceed 5 years. (d) The above long-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 long-term liabilities is $820,812 ($935,509 in 2018). Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 19 10. Tangible capital assets Information relating to tangible capital assets is as follows: (i) 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 2019 amounted to $359,732 ($955,033 in 2018). (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 to support road allowances was acquired at no cost. (iii) Works of art and historical treasures The City has a museum which holds various historical treasures and historical buildings pertaining to the heritage and history of the City of Pickering. These items are not recognized as tangible capital assets in the consolidated financial statements because a reasonable estimate of the future benefits associated with such property cannot be made. Any acquisition or betterment of these assets is recognized as an expense in the consolidated financial statements. (iv) Other The net book value of tangible capital assets not being amortized because they are under construction is $12,912,198 ($31,236,184 in 2018). During the year, there were no write-downs of assets ($Nil in 2018) and no interest was capitalized during the year ($Nil in 2018). (v) Land held for resale During the year ended December 31, 2018, 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 the Consolidated Statement of Financial Position reflects the purchase price and other related servicing costs recoverable on the sale of land. This parcel of land was sold to Kubota Inc. in January 2019. As at December 31, 2019, deposits of $1,853,549 were made towards five parcels of land which are recorded as prepaid expenses. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 20 10. Tangible capital assets (continued) MachineryInformation Library FurnitureAssetsand technology collectionandunderLand Buildings equipment Vehicles Infrastructure hardware materials fixtures construction2019$$$$ $$$$$$CostBalance, beginning of year55,997,456 83,923,046 10,439,756 13,307,132 292,450,399 2,092,391 2,250,862 884,410 31,236,184 492,581,636 AddAdditions during the year143,759 32,584,403 1,557,732 3,198,795 8,259,343 245,587 344,482 334,888 6,725,986 53,394,975 LessDisposals/transfers during the year9,871 396,630 523,459 1,183,922 6,425,349 22,588 421,680 — 25,049,972 34,033,471 Balance, end of year56,131,344 116,110,819 11,474,029 15,322,005 294,284,393 2,315,390 2,173,664 1,219,298 12,912,198 511,943,140 AccumulatedamortizationBalance,beginning of year— 46,014,835 5,427,167 7,594,919 170,764,482 1,374,250 1,155,683 370,946 — 232,702,282 AddAmortization— 4,176,541 849,043 1,016,786 5,426,276 243,542 383,642 66,810 — 12,162,640 LessAccumulatedamortizationon disposals— 369,486 483,479 1,177,455 3,546,759 22,588 421,679 — — 6,021,446 Balance, end of year— 49,821,890 5,792,731 7,434,250 172,643,999 1,595,204 1,117,646 437,756 — 238,843,476 Net book value oftangible capitalassets56,131,344 66,288,929 5,681,298 7,887,755 121,640,394 720,186 1,056,018 781,542 12,912,198 273,099,664 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 21 10. Tangible capital assets (continued) MachineryInformation Library Furniture Assetsand technology collection and underLand Buildings equipment VehiclesInfrastructure hardware materials fixtures construction2018$$$$ $$$$$ $CostBalance, beginning of year 55,662,991 81,644,369 9,149,950 13,343,358 280,938,295 1,785,121 2,358,369 730,808 18,379,602 463,992,863 AddAdditions during the year484,872 3,819,321 1,621,835 494,571 12,261,833 426,475 366,812 153,602 17,891,159 37,520,480 LessDisposals/transfers during the year150,407 1,540,644 332,029 530,797 749,729 119,205 474,319 — 5,034,577 8,931,707 Balance, end of year 55,997,456 83,923,046 10,439,756 13,307,132 292,450,399 2,092,391 2,250,862 884,410 31,236,184 492,581,636 AccumulatedamortizationBalance,beginning of year— 44,034,616 4,980,437 7,279,120 164,665,893 1,229,914 1,224,942 320,954 — 223,735,876 AddAmortization— 3,508,849 750,557 846,596 6,691,254 227,779 405,060 49,992 — 12,480,087 LessAccumulatedamortizationon disposals— 1,528,630 303,827 530,797 592,665 83,443 474,319 — — 3,513,681 Balance, end of year— 46,014,835 5,427,167 7,594,919 170,764,482 1,374,250 1,155,683 370,946 — 232,702,282 Net book value oftangible capitalassets55,997,456 37,908,211 5,012,589 5,712,213 121,685,917 718,141 1,095,179 513,464 31,236,184 259,879,354 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 22 11. Accumulated surplus The City’s accumulated surplus is comprised of the following: 2019 2018 $$ Capital fund 18,495,702 20,701,530 Operating fund 125,253 125,247 Equity in Veridian Corporation 96,376,823 84,628,856 Tangible capital assets 273,099,664 259,879,354 Post-employment benefits liability (6,692,681) (6,081,194) Interfund loans (1,512,063) (1,986,799) Net long-term liabilities (30,819,986) (29,418,973) Note receivable soccer facility 3,255,916 3,530,086 WSIB benefit liabilities (1,968,663) (1,917,179) Reserves set aside for special purposes by Council Working capital 400,000 400,000 Self insurance 677,642 912,642 Replacement of capital equipment 1,997,241 2,316,335 Contingencies 1,772,591 1,702,591 Rate stabilization 19,370,349 17,962,479 City's share for development charge 7,275,413 9,384,927 Continuing studies 429,451 703,285 Vehicle replacement 2,046,341 1,612,757 Easement settlement 390 390 Land purchase 14,403 14,403 Seaton development review 1,437,822 1,437,822 Financial systems 273,308 43,647 Senior centre 1,400,000 700,000 Accessibility initiatives 31,944 31,944 Winter control 700,000 700,000 Sustainability initiatives 300,455 294,455 Duffin Heights 3,201,585 3,430,925 Facilities 566,162 119,345 Accelerated infrastructure program 519,500 519,500 Fence 180,000 150,000 Minor buildings replacement 700,000 300,000 Tennis Courts 796,325 111,100 Major Equipment 275,000 — Museum Collection 2,388 — Recreation Complex 75,000 — Library Building 80,000 — Reserve funds set aside for special purpose by Council Recreation programs and facilities 385,178 377,363 Acquisition of tangible capital assets 303,851 297,686 WSIB 3,930,110 3,548,321 Animal shelter 682,863 522,608 Men's slow pitch 1,638 144,127 Operations Centre 14,286,624 18,375,610 Roads & bridges 4,422,806 3,456,460 Stormwater management 2,944,126 2,683,162 Ontario Community Infrastructure Fund 1,505,939 616,668 Seaton infrastructure 232,703 223,816 Seaton Financial Impact Agreement 1,174,527 777,597 424,753,640 403,332,893 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 23 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, 2019. The results of this valuation disclosed total actuarial liabilities as at that date of $106,443 million in respect of benefits accrued for service with actuarial assets at that date of $103,046 million indicating an actuarial deficit of $3,397 million. Because OMERS is a multi-employer plan, any pension plan surpluses or deficits are a joint responsibility of Ontario municipal organizations and their employers. As a result, the City does not recognize any share of the OMERS pension surplus or deficit. Contributions made by the City to OMERS on account of current service for 2019 were $4,128,799 ($3,985,649 in 2018). 13. Trust Funds Trust funds administered by the City amounting to $373,033 ($367,148 in 2018) have not been included in the Consolidated Statement of Financial Position nor have their operations been included in the Consolidated Statement of Operations. 14. Related party transactions Elexicon Corporation The City of Pickering is a shareholder in Elexicon Corporation (Note 4). The City receives electricity and services from Elexicon Corporation and its subsidiary. 2019 2018 $$ Transactions Revenues Interest on promissory notes 1,083,797 1,229,138 Property taxes levied 42,020 45,172 Expenses Electrical energy and services 1,957,649 2,077,577 Balances Accounts payable and accrued liabilities 393,589 403,117 Promissory notes receivable 25,069,000 25,069,000 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 24 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 or elected official of the City. The maximum amount of any potential future payment cannot be reasonably estimated. (iii) The City has entered into agreements that may include indemnities in favour of third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing contracts, information technology agreements and service agreements. These indemnification agreements may require the City to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnities are not explicitly defined and the maximum amount of any potential reimbursement cannot be reasonably estimated. The nature of these indemnification agreements prevents the City from making a reasonable estimate of the maximum exposure due to the difficulties in assessing the amount of liability which stems from the unpredictability of future events and the unlimited coverage offered to counterparties. Historically, the City has not made any significant payments under such or similar indemnification agreements and therefore no amount has been accrued in the balance sheet with respect to these agreements. 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. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 25 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 2019 Budget adopted by Council on February 25, 2019 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 Financial Assets represent the budget adopted by Council on February 25, 2019 with adjustments as follows: 2019 2019 Post- Council Non TCA employ ment Budget a pproved expenditures benefits/presented in budget from capital amortization statements $$$$ Revenue Taxation 72,165,471 72,165,471 Capital 51,628,414 51,628,414 Other 18,425,021 18,425,021 142,218,906 — — 142,218,906 Expenditures General government 18,632,261 406,000 886,867 19,925,128 Protection to persons and property 26,273,446 — 1,084,300 27,357,746 Transportation services 10,339,151 3,000,000 4,046,269 17,385,420 Environmental services 1,309,597 — 2,186,035 3,495,632 Social and family services 1,033,141 1,033,141 Recreational and cultural services 25,208,981 508,000 3,596,516 29,313,497 Planning and development 3,942,731 — 2,130 3,944,861 86,739,308 3,914,000 11,802,117 102,455,425 Annual surplus (deficit)55,479,598 (3,914,000) (11,802,117) 39,763,481 Capital expenditures (76,638,776) 3,914,000 — (72,724,776) Transfers from reserve and reserve funds 10,215,909 Dividend from Veridian Corporation 1,927,000 Principal repayment of debt (4,567,496) Principal repayment of PSC note 225,000 Debt proceeds 13,233,765 Prior year operating fund surplus (125,000) Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 26 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 the City’s roadways, including snow removal, sidewalk repairs, street lighting and maintenance of the storm water system. Social and family services Social services for assistance or services for seniors. Recreation and culture services Recreation and cultural services include recreation programs, maintenance and rental of facilities and parks, operation of the City’s museum and library services. Planning and development Planning and development provides a number of services including municipal planning and review of all property development plans. Segmented information has been provided in the following pages. Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 27 19. Segmented information (continued) 2019Protection Social and to persons Public works Recreational Planning andfamilyGeneraland propertyservices and cultural development servicesgovernment Consolidated$$ $$$$ $Revenue Grants255,970 2,948,471 1,159,068 — 135,612 506,384 5,005,505 User charges5,380,226 57,852 6,584,649 1,409,635 67,247 863,561 14,363,170 Tax related revenues— — — — — 75,766,581 75,766,581 Developer revenue1,475,077 1,731,969 1,141,931 147,731 7,700 1,726,834 6,231,242 Contributed tangiblecapital assets— 235,826 109,009 — — 14,897 359,732 Income from governmentbusiness enterprise— — — — — 1,345,259 1,345,259 Change in valuation of interest ingovernment business enterpriseon amalgamation— — — — — 12,849,416 12,849,416 Other revenues978,841 — 64,408 — — 4,103,193 5,146,442 8,090,114 4,974,118 9,059,065 1,557,366 210,559 97,176,125 121,067,347 ExpensesSalaries and wages21,782,707 5,675,823 17,182,003 2,726,454 335,965 10,239,791 57,942,743 Materials and supplies2,508,884 4,203,023 6,240,451 206,532 147,177 5,037,529 18,343,596 Contracted services1,027,378 1,101,831 621,912 255,236 341,838 3,524,714 6,872,909 Amortization860,474 5,897,131 4,159,102 2,359 — 1,243,574 12,162,640 Other 128,729 462,220 798,442 9,845 82,937 265,820 1,747,993 (Gain) loss on disposal oftangible capital assets(158,613) 2,764,458 (22,424) — — (6,702) 2,576,719 26,149,559 20,104,486 28,979,486 3,200,426 907,917 20,304,726 99,646,600 Annual (deficit) surplus(18,059,445) (15,130,368) (19,920,421) (1,643,060) (697,358) 76,871,399 21,420,747 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 28 19. Segmented information (continued) 2018ProtectionSocial and to persons Public works Recreational Planning andfamilyGeneraland propertyservices and cultural development servicesgovernment Consolidated$$ $$$$ $Revenue Grants56,957 3,111,935 2,161,568 — 107,487 116,304 5,554,251 User charges7,104,411 35,961 5,977,379 1,192,459 58,984 821,329 15,190,523 Tax related revenues— — — — — 72,165,112 72,165,112 Developer revenue1,011,037 4,301,437 1,960,879 151,084 2,475 1,138,128 8,565,040 Contributed tangiblecapital assets— 510,162 — — — 484,871 995,033 Equity share of Veridian Corporation— — — — — 5,050,712 5,050,712 Gain (loss) on disposal oftangible capital assets— — — — — — — Other revenues976,890 — 74,033 — — 3,838,287 4,889,210 9,149,295 7,959,495 10,173,859 1,343,543 168,946 83,614,743 112,409,881 ExpensesSalaries and wages20,770,883 5,143,629 16,103,489 2,541,302 347,132 9,688,495 54,594,930 Materials and supplies2,235,136 3,393,702 6,492,757 203,914 137,433 5,160,551 17,623,493 Contracted services834,843 921,867 739,832 292,664 137,692 1,073,558 4,000,456 Amortization753,343 6,258,094 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 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 Draft The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2019 Page 29 20. Subsequent event Subsequent to the year-end, on March 11, 2020, the World Health Organization characterized the outbreak of a strain of the novel coronavirus (“COVID-19”) as a pandemic which has resulted in a series of public health and emergency measures that have been put in place to combat the spread of the virus. The duration and impact of COVID-19 is unknown at this time and it is not possible to reliably estimate the impact that the length and severity of these developments will have on the consolidated financial position, results of operations and cash flows of the City in future periods. Draft Financial statements of City of Pickering Public Library Board December 31, 2019 Draft 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 7-12 Draft 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 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, 2019, 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, 2019, 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 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. Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Draft 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. Chartered Professional Accountants Licensed Public Accountants December 14, 2020 Draft City of Pickering Public Library Board Statement of financial position As at December 31, 2019 2019 2018 Notes $$ Financial assets Cash 1,225 1,225 Accounts receivable 874 2,294 Due from the Government of Canada 12,934 11,335 Due from City of Pickering 221,888 147,759 236,921 162,613 Liabilities Accounts payable and accrued liabilities 285,661 208,301 Post-employment benefits liability 2 471,282 464,078 756,943 672,379 Net debt (520,022) (509,766) Non-financial assets Tangible capital assets 4 1,420,297 1,494,063 Prepaid expense 48,740 45,688 1,469,037 1,539,751 Accumulated surplus 5 949,015 1,029,985 The accompanying notes are an integral part of the financial statements. Approved by the Board _______________________________, Director _______________________________, Director Page 3Draft City of Pickering Public Library Board Statement of operations Year ended December 31, 2019 Budget 2019 2018 $$$ (Note 6) Revenue City of Pickering grants 6,018,601 5,930,982 5,882,770 Federal grants — 6,728 9,234 Province of Ontario grants 106,425 135,345 138,049 Fines and other receipts 166,500 130,761 136,720 6,291,526 6,203,816 6,166,773 Expenses Operating Salaries Salaries and wages 3,621,301 3,582,595 3,440,087 Fringe benefits 949,320 939,763 916,264 4,570,621 4,522,358 4,356,351 Material, supplies and utilities Books 252,290 262,455 234,355 Utilities 267,211 217,186 219,266 Other supplies 55,950 59,186 52,556 575,451 538,827 506,177 Services Repairs and maintenance 341,837 333,060 284,079 Insurance 25,918 23,918 23,918 Travel 6,000 6,341 7,358 Consulting and professional 21,850 28,535 112,978 Advertising 27,000 29,093 27,107 Conference 9,000 8,694 13,106 Postage 2,800 3,505 2,823 Telephone 77,915 60,263 65,597 Seminars and education 22,500 22,475 18,602 Software/hardware maintenance 172,765 172,902 150,008 Vehicle repairs and maintenance 4,843 2,324 3,816 Minor capital purchases 24,500 56,589 119,775 Miscellaneous 14,730 18,161 20,636 751,658 765,860 849,803 Amortization of tangible capital assets 463,289 457,741 466,629 6,361,019 6,284,786 6,178,960 Annual deficit (69,493) (80,970) (12,187) Accumulated surplus, beginning of year 1,029,985 1,029,985 1,042,172 Accumulated surplus, end of year 960,492 949,015 1,029,985 The accompanying notes are an integral part of the financial statements. T Page 4Draft City of Pickering Public Library Board Statement of change in net debt Year ended December 31, 2019 Budget 2019 2018 $$$ (Note 6) Annual deficit (69,493) (80,970) (12,187) Acquisition of tangible capital assets (401,000) (383,975) (465,952) Amortization of tangible capital assets 463,289 457,741 466,629 62,289 73,766 677 Acquisition of prepaid expenses — (48,740) (45,688) Usage of prepaid expenses — 45,688 37,453 Change in prepaid expense — (3,052) (8,235) Change in net debt (7,204) (10,256) (19,745) Net debt, beginning of year (509,766) (509,766) (490,021) Net debt, end of year (516,970) (520,022) (509,766) The accompanying notes are an integral part of the financial statements. Page 5Draft City of Pickering Public Library Board Statement of cash flows Year ended December 31, 2019 2019 2018 $$ Operating transactions Annual deficit (80,970) (12,187) Non-cash items Amortization of tangible capital assets 457,741 466,629 376,771 454,442 Change in non-cash operating items Decrease (increase) in accounts receivable 1,420 (961) (Increase) decrease in due from Government of Canada (1,599) 3,592 (Increase) decrease in due from City of Pickering (74,129) 14,947 Increase (decrease) in accounts payable and accrued liabilities 77,360 5,450 Decrease in deferred revenue — (14,793) Increase in post-employment benefits liability 7,204 11,510 (Increase) decrease in prepaid expense (3,052) (8,235) 7,204 11,510 383,975 465,952 Capital transaction Acquisition of tangible capital assets (383,975) (465,952) Net change in cash — — Cash, beginning of year 1,225 1,225 Cash, end of year 1,225 1,225 The accompanying notes are an integral part of the financial statements. Page 6Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 7 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 amortized on a straight-line basis over the estimated useful life as follows: Machinery and equipment 2 to 25 years Information technology hardware 4 to 8 years Library collection materials 4 to 7 years Furniture and fixtures 10 to 50 years One-half of the annual amortization is charged in the year of acquisition and in the year of disposal. Other major assets including the Library buildings are owned by the City and are not reflected in these financial statements. (ii) Contribution/donation of tangible capital assets Tangible capital assets received as contributions or donations are recorded at their fair value at the date of receipt, and that fair value is also recorded as revenue. (iii) Intangible assets Intangible assets are not recognized as assets in the financial statements. (c) Post-employment benefits The present value of the cost of providing employees with future benefits programs is recognized as employees earn these entitlements through service. Any actuarial gains or losses are amortized on a straight-line basis over the average remaining service period (ARSP) of employees. The actuary estimated the ARSP to be 13 years 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. Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 8 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-employment extended healthcare benefits. Coverage ceases at the age of 65. The Library Board also provides full-time and permanent part-time employees a sick time entitlement, with any unused entitlement accumulated year to year. This accumulated entitlement is not vested and therefore is forfeited at the time of retirement or termination. The post-employment benefits obligation at December 31, 2019 and the changes in the accrued benefit obligation for the 2019 fiscal year was determined by actuarial valuation prepared as at December 31, 2017, with projection to December 31, 2019. Information about the Library Board’s post-employment benefits liability is as follows: 2019 2018 $$ Post-employment benefits liability, beginning of year 464,078 452,568 Current service costs 31,813 30,062 Amortization of actuarial (gains) losses (363) (262) Interest expense 13,512 13,157 Benefits paid during the year (37,758) (31,447) Post-employment benefits liability 471,282 464,078 2019 2018 $$ Accrued post-employment benefits obligation 370,872 363,305 Unamortized actuarial gains 100,410 100,773 Post-employment benefits liability 471,282 464,078 The main actuarial assumptions employed in the actuarial valuation are as follows: (a) Discount rate The present value as at December 31, 2019 of the future benefits was determined using a discount rate of 3.75% (3.75% in 2018). (b) Dental cost The dental cost trend rate was 3.75% (3.75% in 2018) per annum. Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 9 2. Post-employment benefits liability (continued) (c) Health costs Health costs were assumed to increase at 6.09% (6.42% in 2018) and decrease by 0.33% (0.33% in 2018) 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 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, 2019. The results of this valuation disclosed total actuarial liabilities as at that date of $106,443 million in respect of benefits accrued for service with actuarial assets at that date of $103,046 million indicating an actuarial deficit of $3,397 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 Library Board does not recognize any share of the OMERS pension surplus or deficit. Contributions in the amount of $300,971 ($288,959 in 2018) were paid to OMERS on behalf of its members during the year. Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 10 4. Tangible capital assets (TCA) Machinery Information Library Furniture Assets and technology collection and under equipment hardware materials fixtures construction 2019 $$$$$$ Cost Balance, beginning of year 23,681 301,848 2,250,862 423,691 — 3,000,082 Additions during the year — 13,013 344,482 26,480 — 383,975 Disposals/transfers to TCA during the year — — 421,679 — — 421,679 Balance, end of year 23,681 314,861 2,173,665 450,171 — 2,962,378 Accumulated amortization Balance, beginning of year 12,914 171,719 1,155,683 165,703 — 1,506,019 Amortization 1,869 49,180 383,642 23,050 — 457,741 Accumulated amortization on disposals — — 421,679 — — 421,679 Balance, end of year 14,783 220,899 1,117,646 188,753 — 1,542,081 Net book value 8,898 93,962 1,056,019 261,418 — 1,420,297 Machinery Information Library Furniture Assets and technology collection and under equipment hardware materials fixtures construction 2018 $$$$ $$ Cost — — — Balance, beginning — — — of year 23,681 255,350 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 1,155,683 165,682 — 1,980,317 Net book value 10,767 130,129 1,095,179 257,988 — 1,494,063 Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 11 5. Accumulated surplus Accumulated surplus consists of the following: 2019 2018 $$ Invested in tangible capital assets 1,420,297 1,494,063 Post-employment benefits liability (471,282) (464,078) 949,015 1,029,985 6. Budget figures The 2019 budget was not prepared on a basis consistent with that used to report actual results. The budget was prepared on a modified accrual basis while Canadian public sector accounting standards require a full accrual basis of accounting. The budget figures treated all tangible capital asset (TCA) acquisitions as expenditures and did not include amortization expense on tangible capital assets or post-employment benefits expenses on a full accrual basis. The following provides a reconciliation from the approved budget to the budget numbers presented in the financial statements. 2019 Post-emplo yment 2019 budget Council a pproved benefits / presented in budget Amortization/ statements City Assets $$$ Revenue City of Pickering 8,002,747 (1,984,146) 6,018,601 Province of Ontario grants 2,090,571 (1,984,146) 106,425 Fines and other receipts 166,500 — 166,500 10,259,818 (3,968,292) 6,291,526 Expenditures Salaries and benefits 4,563,417 7,204 4,570,621 Material, supplies and utilities 575,451 — 575,451 Services 751,658 — 751,658 Amortization — 463,289 463,289 5,890,526 470,493 6,361,019 Annual surplus (deficit)4,369,292 (4,438,785) (69,493) Capital ex penditures/ additions 4,369,292 (3,968,292) 401,000 7. Comparative figures Certain of the prior year’s comparative figures have been reclassified to conform to the current year’s presentation.Draft City of Pickering Public Library Board Notes to the financial statements December 31, 2019 Page 12 8. Subsequent event Subsequent to the year-end, on March 11, 2020, the World Health Organization characterized the outbreak of a strain of the novel coronavirus (“COVID-19”) as a pandemic which has resulted in a series of public health and emergency measures that have been put in place to combat the spread of the virus. The duration and impact of COVID-19 is unknown at this time and it is not possible to reliably estimate the impact that the length and severity of these developments will have on the financial position, results of operations and cash flows of the Library Board in future periods.Draft