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HomeMy WebLinkAboutFIN 07-23Report to Council Report Number: FIN 07-23 Date: March 27, 2023 From: Stan Karwowski Director, Finance & Treasurer Subject: 2021 Year End Audit and Financial Statements (Final) - File: F-3300-001 Recommendation: 1. That the Report on the results of the 2021 Audit as submitted by Deloitte LLP be received for information; 2. That the 2021 draft Audited Consolidated Financial Statements for the City of Pickering be approved; and, 3. That Deloitte LLP be reappointed to provide external auditing services to the City of Pickering for a three year term. Executive Summary: Attached to this report is the auditor’s report on the results of the 2021 Audit and the draft Audited Consolidated Financial Statements for the year ended December 31, 2021. The auditor has provided an unmodified audit report on the financial statements. This means that the financial statements present fairly, in all material respects, the financial position of the City and its operations, changes in its net financial assets and its cash flows in accordance with Canadian public sector accounting standards. The auditor did not identify any significant deficiencies during the audit to formally report to Council. Under section 296 of the Municipal Act, 2001, Council must appoint an auditor, licensed under the Public Accounting Act, 2004, for a period not to exceed five years. The current auditor, Deloitte LLP (Deloitte), was last appointed in 2018 for a three year term. As the term ends with the 2021 year end audit, it is recommended the firm be reappointed for a three year term. 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. The fees for the 2022 audit services has increased to $91,100 with an inflationary increase for the years 2023 and 2024. This includes the audit services for the City of Pickering, Pickering Library Board and the Trust Fund. There is sufficient provisions in the budget to accommodate these fees. Discussion: As you are aware, the pandemic continued through most of 2021 and at the same time the City was in the middle of implementing the new Financial System which went live on September 1, 2021. Implementing the new system during the pandemic provided additional challenges to an already stressful environment with limited resources. The FIN 07-23 March 27, 2023 Subject: 2021 Year End Audit and Financial Statements (Final) Page 2 implementation of a new financial system takes a significant amount of staff time and of course with any new system there is a learning curve by all staff within the Corporation from dealing with a new chart of accounts, new processes for inputting and extracting information in the system and development of new reports. This had an added challenge of trying to provide training, troubleshoot problems and completing an audit when the environment was still heavily geared to working remotely. As a result, finalizing the 2021 financial results and auditing of same were delayed as City staff were combining the results from two systems and developing new processes and reports for analyzing the accounts and preparing the Financial Statements. All these factors have contributed to the delay in the 2021 Financial Statements from being presented until now. The audit of the consolidated financial statements for the year ended December 31, 2021 has now been completed. The auditor’s Report on the Results of the 2021 Audit is included as Attachment 1. This Report, prepared by Deloitte, summarizes its findings from the December 31, 2021 audit and comments on significant matters regarding the audit. Year over year there may be amounts transferred out of Assets under Construction (AUC) and moved to expenses due to a change in circumstances where the costs are deemed to no longer be eligible to be capitalized as an asset. For 2021, there was approximately $2.7 million of expenses for servicing related costs on the employment lands that were incurred in prior years that were identified to not be a City asset and removed from AUC. Overall this amount is not material when compared to the $298.6 million dollar value of tangible capital assets reported and is within the auditor’s threshold of materiality so that prior year financial statements did not need to be restated. This amount was expensed in 2021 in order to accurately report the tangible capital asset value for the City at December 31, 2021. This is noted in the auditor’s report and management representation letter. Appendix 1 provides a summary of communication requirements which Deloitte is required to bring to Council’s attention. The independence letter in Appendix 2 confirms that Deloitte is independent from the City. Appendix 3 is the draft management representation letter which is provided by the City to the auditors. This letter indicates that the financial statements are management’s responsibility and that management has provided and disclosed all necessary information to ensure that the financial statements are not materially misstated. This letter will be signed by the appropriate authorities upon approval of the financial statements. The scope of the audit does not include an in-depth evaluation of all systems or internal controls, however, the auditors may report on matters that come to their attention during the course of their review. No significant matters came to their attention to report. The draft Audited Consolidated Financial Statements, for the year ended December 31, 2021, are included as Attachment 2. These statements are the responsibility of management and have been prepared by City accounting staff under the direction of the Director, Finance & Treasurer. The auditors are responsible to express an opinion on these Consolidated Financial Statements based on their audit. An unmodified audit report has been issued which means the auditors have indicated that in their opinion, the consolidated financial statements are fairly presented, in all material respects. In other words the City has a clean report. The Consolidated Financial Statements include the activities of the City of Pickering Public Library FIN 07-23 March 27, 2023 Subject: 2021 Year End Audit and Financial Statements (Final) Page 3 Board. The City’s investment in Elexicon Corporation is accounted for on a modified equity basis, which means the City includes its share of Elexicon’s income or loss in the Consolidated Financial Statements. Reappointment of Auditors Deloitte was last appointed to conduct the statutory audits for the 2018 to 2021 fiscal years. Experience in the public sector, specifically municipalities, range of other services available and knowledge of the client are important considerations for appointment of an auditor. Deloitte is one of the largest public accounting firms in Canada and has vast experience within the municipal sector. The City relies on Deloitte’s experience and expertise as it relates to the financial environment and other City operations. They are a trusted partner that provides advice based on their knowledge and experience obtained from numerous municipal clients. They provide a variety of auditing, accounting and advisory services to a number of municipalities including six of the eight local municipalities and the Regional Municipality of Durham. The services provided by Deloitte have clearly demonstrated proficiency in the municipal environment, particularly Public Sector Accounting Board standards and guidelines. Their comments and assistance is always relevant and practical. Based on experience to date, the firm has provided an excellent level of service. The fees for the 2022 audit services has been increased to $91,100 with an inflationary increase estimated for the years 2023 and 2024. This includes the audit services for the City of Pickering, Pickering Public Library Board and the Trust Fund. Deloitte has held their audit fee for a number of years but due to the present economic environment combined with the introduction of new auditing standards and a more sophisticated and integrated financial system, the audit fee has increased. The City’s purchasing policy permits the “one price quote” approach for this engagement due to the specialized services. Staff believe this is a reasonable fee for audit service in light of all the contributing factors and is recommending that Deloitte be reappointed for a three year term. Attachments: 1. Report on the Results of the 2021 Audit 2. 2021 Draft Audited Consolidated Financial Statements Prepared By: Approved/Endorsed By: Original Signed By: Original Signed By: Kristine Senior Stan Karwowski Manager, Accounting Services Director, Finance & Treasurer FIN 07-23 March 27, 2023 Subject: 2021 Year End Audit and Financial Statements (Final) Page 4 Recommended for the consideration of Pickering City Council Original Signed By: Marisa Carpino, M.A. Chief Administrative Officer . The Corporation of the City of Pickering Report on the results of the 2021 audit To be presented on March 27, 2023 Attachment #1 to Report FIN 07-23 . ~ttc LLP Deloitte LLP Bay Adelaide East 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca March 21, 2023 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 consolidated financial statements Dear Council Members: We are pleased to submit this report on the status of our audit of the consolidated financial statements (the “financial statements”) of the Corporation of the City of Pickering (the “City”) and the financial statements of the related City entities for the fiscal year ended December 31, 2021. This report summarizes the scope of our audit, our findings and reviews certain other matters that we believe to be of interest to you. As agreed in our Master Services Agreement dated October 17, 2019, and confirmation of changes letter dated November 2, 2020, we have performed an audit of the financial statements of the City, the City of Pickering Library Board (the “Library”) and the City of Pickering Trust Funds (the “Trust Funds”), as at, and for the year ended December 31, 2021, in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”) and expect to issue our Independent Auditor’s Report thereon upon completion of outstanding matters highlighted in this report, and upon approval of the financial statements by yourself. This report is intended solely for the information and use of Council, management and others within the City and is not intended to be, and should not be, used 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 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 answering any questions you may have. Yours truly, Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering | Table of contents Table of contents Executive summary 1 Significant audit risks, other audit risks and events 3 Significant accounting policies, judgments and estimates 6 Appendix 1 – Communication requirements and other reportable matters Appendix 2 – Independence letter Appendix 3 – Draft management representations letter © Deloitte LLP and affiliated entities. i The Corporation of the City of Pickering | Executive summary Executive summary 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 (the “financial statements”) prepared in accordance with Canadian Public Sector Accounting Standards for the City and the Library Board and Canadian Accounting Standards for Not-For-Profit Organizations for the Trust Funds as at and for the year ended December 31, 2021. Our audit was conducted in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). The terms and conditions of our engagement are described in the Master Services Agreement dated October 17, 2019 and Confirmation of Changes Letter dated November 2, 2020. We have developed appropriate safeguards and procedures to eliminate threats to our independence or to reduce them to an acceptable level. Significant audit risks 1 Management override of controls 2 Revenue recognition 3 Management judgments and accounting estimates 4 Implementation of new financial system 5 Preparation for new PSAS accounting standards Uncorrected misstatements During the current year audit, it was noted that certain capital costs incurred in prior years and recorded as “asset under construction” did not meet capitalization criteria and should have been expensed in prior years. These costs, totalling $2.7 million, were corrected and expensed in the current year. The correction of this prior period amount resulted in the current year surplus being understated by $2.7 million. The December 31, 2021 statement of financial position has been properly corrected with this adjustment. © Deloitte LLP and affiliated entities. 1 • • The Corporation of the City of Pickering | Executive summary Outstanding matters & next steps Highlights Completion of minor audit documentation items Receipt of one legal letter Completion of our subsequent events procedures Going concern Receipt of signed management representations letter Receipt of component audit response from auditors of Elexicon Corporation No changes in the significant risks identified. Results Tested internal controls over the system transition to SAP, including the testing of internal controls over project governance, as well as the migration of data from the legacy system to SAP. Management has completed its assessment of the ability of the City to continue as a going concern and in making its assessment did not identify any material uncertainties related to events or conditions that may cast significant doubt upon the City’s ability to continue as a going concern. We agree with management’s assessment. We intend to issue an unmodified audit report on the consolidated financial statements of the City, the Library Board and the Trust Funds, for the year ended December 31, 2021 once the outstanding items referred to above are completed satisfactorily and the financial statements are approved. © Deloitte LLP and affiliated entities. 2 The Corporation of the City of Pickering | Significant audit risks, other audit risks and events Significant audit risks, other audit risks and events The significant audit risks identified as part of our risk assessment, together with our planned responses and conclusions, are described below. Significant audit risks Management override of controls* Analysis of risk Audit response and results Under Canadian Auditing Standards, 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. −We engaged in periodic fraud discussions with certain members of senior management and others. −We tested journal entries that exhibit characteristics of possible management override of controls, identified using manual techniques. −We evaluated the business rationale for any significant unusual transactions. −We considered the potential for bias in judgments and estimates, including performing retrospective analysis of significant accounting estimates. −We evaluated the City’s fraud risk assessment and consider entity-level internal controls and internal controls over the closing and reporting process. −We obtained sufficient audit evidence to conclude that there were no material misstatements. Revenue recognition* Analysis of risk Audit response and results Under Canadian GAAS, we are required to evaluate the risk of fraud in revenue recognition. For municipalities, there is a risk around the occurrence, completeness and accuracy of revenue, deferred revenue, and classification of recognition related to government transfer/grants. We recognize that as a result of COVID-19 there may be certain changes in volume of other revenue streams (i.e. recreation, permits and fees, etc.) and additional grants funding received which may have performance conditions. These changes to revenue will be captured as part of our audit response. −We tested the design and implementation of controls in the significant revenue streams and performed detailed testing in these areas. −We performed substantive testing to determine if restricted grants/contributions (i.e., development charges, gas tax, etc.) and government transfers have been recognized as revenue in the appropriate period. In particular, we tested the recognition of COVID-19 specific grants, such as the Safe Restart grant, and its recognition. −We performed testing on casino revenue to ensure its recognition is in line with the contribution agreement between the City and the OLG. © Deloitte LLP and affiliated entities. 3 The Corporation of the City of Pickering | Significant audit risks, other audit risks and events Revenue recognition* Analysis of risk Audit response and results −We obtained sufficient audit evidence to conclude that there were no material misstatements. *These areas were identified as areas of significant risk, as required by Canadian Auditing Standards. Management judgments and accounting estimates Analysis of risk Audit response and results Management judgments and accounting estimates may be subject to estimation uncertainty. Significant judgments and estimates: 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. −We obtained an understanding of how management makes the accounting estimates and the underlying data on which those estimates are based. −We reviewed the support for significant assumptions made by management. −We evaluated the significant assumptions made by management for accounting estimates. −We assessed the reasonableness of the estimates made at year-end. −We assessed the consistency of assumption made by management. −We obtained sufficient audit evidence to conclude that there were no material misstatements. Implementation of new financial system Analysis of risk Audit response and results The City implemented a new financial system, SAP, during fiscal 2021. Given the complexity associated with such a significant undertaking and the impact on numerous City departments, our audit focus will be on assessing the internal controls over the change management process (both during and post-implementation), as well as the accuracy and completeness of financial data converted and migrated to SAP. − − We obtained an understanding of the project scope for the systems implementation through discussion with Finance and project management and assessed the implications on our audit strategy for fiscal 2021. We obtained an understanding of the data conversion and migration from the old system to the new system. We performed testing on the data migrated to SAP to ensure accuracy and completeness and that the opening trial balance in SAP was accurate, and in line with the prior year audited trial balance. −We performed testing of the internal controls implemented through the systems implementation process, including internal controls over project decision approvals, pre- conversion testing, project governance, access provisioning in the new system, among others. We tested the design and implementation of key controls within this process. −We obtained sufficient audit evidence to conclude that there were no material misstatements as a result of the systems transition. © Deloitte LLP and affiliated entities. 4 The Corporation of the City of Pickering | Significant audit risks, other audit risks and events Preparation for new PSAS accounting standards Analysis of risk Audit response and results In fiscal 2023, two new significant accounting standards, PS 3280 Asset retirement obligations, and PS 3450 Financial instruments, will come in effect. Both standards will require early preparation by the City, including development of accounting policies, information gathering with various City departments, engagement of external consultants to assist with valuation, and development of go-forward processes for policy maintenance. −We continue to be in discussions with Finance management for the implementation of the new accounting standards. © Deloitte LLP and affiliated entities. 5 The Corporation of the City of Pickering | Significant accounting policies, judgments and estimates Significant accounting policies, 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. Accounting estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. These judgments are normally based on knowledge and experience about past and current events, assumptions about future events and interpretations of the financial reporting standards. During the year ended December 31, 2021, management advised us that there were no 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. © Deloitte LLP and affiliated entities. 6 The Corporation of the City of Pickering | Appendix 1 – Communication requirements and other reportable matters Appendix 1 – Communication requirements and other reportable matters Required communication Refer to this report or document described below Audit service plan 1.Our responsibilities under Canadian GAAS, including forming and expressing an opinion on the financial statements Audit service plan dated April 8, 2022 2.An overview of the overall audit strategy, addressing: a.Timing of the audit b.Significant risks, including fraud risks c.Names, locations, and planned responsibilities of other independent public accounting firms or others that perform audit procedures in the audit Audit service plan dated April 8, 2022 3.Significant transactions outside of the normal course of business, including related party transactions Audit service plan dated April 8, 2022 Year end communication 4.Fraud or possible fraud identified through the audit process None noted 5.Significant accounting policies, practices, unusual transactions, and our related conclusions Significant accounting practices, judgments and estimates section 6.Alternative treatments for accounting policies and practices that have been discussed with management during the current audit period None noted 7.Matters related to going concern Note noted – refer to Executive summary 8.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. 9.Management judgments and accounting estimates Significant accounting practices, judgments and estimates section 10.Significant difficulties, if any, encountered during the audit None © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering | Appendix 1 – Communication requirements and other reportable matters Required communication Refer to this report or document described below 11.Material written communications between management and us, including management representation letters Master service agreement dated October 17, 2019 and the subsequent letter of confirmation of changes to the Master Services Agreement dated November 2, 2020, Management representation letter – Appendix 3. 12.Circumstances that affect the form and the content of the auditor’s report Master service agreement dated October 17, 2019 and the subsequent letter of confirmation of changes to the Master Services Agreement dated November 2, 2020. 13.Other matters that are significant to the oversight of the financial reporting process No other matters to report. 14.Modifications to our opinion None. 15.Other significant matters discussed with management None. 16.Matters involving non-compliance with laws and regulations that come to our attention, unless prohibited by law or regulation, including Illegal or possibly illegal acts that come to our attention None. 17.Litigation No litigation matters to report. 18.Significant deficiencies in internal control, if any, identified by us in the conduct of the audit of the financial statements No deficiencies to report. 19.Uncorrected misstatements and disclosure items In accordance with Canadian GAAS, we request that all misstatements be corrected. There were no uncorrected misstatements. Other reportable matters 20.Changes to the audit plan The audit was conducted in accordance with our audit plan dated April 8, 2022 which was presented to the Members of the Executive Committee. We confirm that there have been no significant amendments to the audit scope and approach communicated in the audit plan. 21.Concerns regarding management competence and integrity We have not determined any concerns regarding management competence and integrity. 22.Disagreements with management In the course of our audit, we did not encounter any disagreements with management about matters that individually or in the aggregate could be significant to the financial statements. 23.Post-balance sheet events At the date of finalizing this report, we are not aware of any significant post-balance sheet events. 24.Reliance on service organizations The City makes use of ADP in the processing of payroll transactions. We obtained the CSAE 3416 service organization report on the operating effectiveness of internal controls adopted at ADP, and noted no issues which would impact our audit. 25.Other significant matters arising from the audit None noted. © Deloitte LLP and affiliated entities. The Corporation of the City of Pickering | Appendix 2 – Independence letter Appendix 2 – Independence letter © Deloitte LLP and affiliated entities. . The Corporation of the City of Pickering | Appendix 2 – Independence letter Deloitte LLP 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada Tel: 416-601-6150 Fax: 416-601-6610 www.deloitte.ca March 21, 2023 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, 2021. 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/order 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 January 12, 2022, the date of our last letter. Deloitte provided the following non-audit services between January 12, 2022 and March 21, 2023: − Pickering City Centre development advisory and project services − Hospital site proposal © Deloitte LLP and affiliated entities. LLfJ The Corporation of the City of Pickering | Appendix 2 – Independence letter We are not aware of any relationships between the Deloitte Entities and the City and its affiliates, or persons in financial reporting oversight roles at the City and its affiliates, that, in our professional judgment, may reasonably be thought to bear on independence, that have occurred from January 12, 2022 to March 21, 2023. 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 March 21, 2023. 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 © Deloitte LLP and affiliated entities. Appendix 3 – Draft management representations letter Deloitte LLP [DATE] Page 2 [City letterhead] [DATE] Deloitte LLP 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Subject: Consolidated financial statements of The Corporation of the City of Pickering for the year ended December 31, 2021 Dear Ms. Lilian Cheung: 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, 2021, 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 and subsequent confirmation of changes letters 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, 2021 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, 2021 that require adjustment to the estimates and disclosures included in the Financial Statements. Deloitte LLP [DATE] Page 3 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, 2021 and up to the date of this letter. 5. The Financial Statements are free of material errors and omissions. We believe that the effects of any uncorrected Financial Statement misstatements pertaining to the current period presented, are immaterial, both individually and in the aggregate, to the Financial Statements taken as a whole. A list of the uncorrected misstatements aggregated by you is attached in Appendix A. 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 Council 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. Deloitte LLP [DATE] Page 4 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. 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. 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. Immaterial matters less than $149,000 (representing the clearly trivial threshold for audit purposes) collectively are not considered to be exceptions that require disclosure for the purpose of representations #18 to #40. This amount is not necessarily indicative of amounts that would require adjustment to or disclosure in the Financial Statements. 18. Except as listed in Appendix A, all transactions have been properly recorded in the accounting records and are reflected in the Financial Statements. Deloitte LLP [DATE] Page 5 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. 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. Deloitte LLP [DATE] Page 6 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 bodies. 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. 38. We have reviewed the assets under construction and believe that these costs recorded represent tangible capital assets of the City that will be completed in the future, and that any costs incurred which will not result in future tangible capital assets, or do not meet capitalization criteria, have been properly expensed. Environmental liabilities/contingencies 39. 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 Deloitte LLP [DATE] Page 7 matters on the carrying values of the relevant assets are recognized, measured and disclosed, as appropriate, in the Financial Statements. Government Business Enterprises 40. 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. Liabilities for contaminated sites 41. 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 Chief Administrative Officer The Corporation of the City of Pickering | Appendix 3 – Draft management representations letter Appendix A The Corporation of the City of Pickering Summary of uncorrected financial statement misstatements Year ended December 31, 2021 Description Assets DR (CR) Liabilities DR (CR) Accumulated Surplus, Opening DR (CR) Income Statement DR (CR) In the current year, it was noted that certain costs incurred in prior years and previously recorded as assets under construction (part of tangible capital assets (“TCA”)) should have been expensed in prior years as they will not result in any City-owned TCAs. The City has expensed these costs in 2021, instead of restating the prior year financial statements, as it has been determined that this amount is not material relative to the overall financial statements. As this correction was recorded in 2021 only, the opening accumulated surplus is overstated, and the current year income statement is understated as a result of the expensing of prior period costs. The ending statement of financial position has been corrected and this error will not carry forward into future years. $2,721,416 $(2,721,416) © Deloitte LLP and affiliated entities. Consolidated financial statements of The Corporation of the City of Pickering December 31, 2021 DRAFT - FOR DISCUSSION ONLY Attachment #2 to Report FIN 07-23 2 3 4 5 6 Independent Auditor’s Report 1– Consolidated statement of financial position Consolidated statement of operations Consolidated statement of change in net financial assets Consolidated statement of cash flows Notes to the consolidated financial statements 7–29 DRAFT - FOR DISCUSSION ONLY . Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Independent Auditor’s Report To the Members of 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, 2021, 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, 2021, and the results of its operations, changes in net financial assets, and its cash flows for the year then ended in accordance with Canadian public sector accounting standards (“PSAS”). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the City in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PSAS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the City’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the City or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the City’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. DRAFT - FOR DISCUSSION ONLY 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 [DATE] DRAFT - FOR DISCUSSION ONLY The Corporation of the City of Pickering Consolidated statement of financial position As at December 31, 2021 2021 2020 Notes $ $ Financial assets Cash and cash equivalents 93,364,602 81,028,753 Investments 3 140,255,810 115,753,076 Taxes receivable 22,688,178 26,165,724 Accounts receivable 7,365,804 3,134,923 Note receivable 17 2,681,988 2,973,217 Investment in Elexicon Corporation 4(c) 70,022,403 68,318,936 Promissory notes receivable 5 25,069,000 25,069,000 361,447,785 322,443,629 Liabilities Accounts payable and accrued liabilities 37,473,687 37,814,573 Other current liabilities 217,958 156,871 Deferred revenue 6 105,095,559 94,209,378 Long-term liabilities 9 40,742,259 29,118,644 Post-employment benefit liability 8(a) 8,702,252 7,505,863 WSIB benefit liabilities 8(b) 2,876,413 2,691,240 195,108,128 171,496,569 Net financial assets 166,339,657 150,947,060 Non-financial assets Tangible capital assets 10 298,638,881 288,596,364 Prepaid expenses 10(v) 1,745,544 2,019,080 Inventory 544,515 478,129 300,928,940 291,093,573 Accumulated surplus 11 467,268,597 442,040,633 The accompanying notes are an integral part of the consolidated financial statements. DRAFT - FOR DISCUSSION ONLY Page 3 The Corporation of the City of Pickering Consolidated statement of operations Year ended December 31, 2021 2021 2020 Budget Actual Actual Notes $ $ $ (Note 18) Revenue Residential and farm taxation 58,492,935 59,310,500 56,949,868 Commercial and industrial taxation 11,677,969 11,559,233 11,667,761 Taxation from other governments 8,165,459 8,266,805 8,144,562 User charges 10,002,063 10,418,337 10,202,955 Government grants and fees 12,502,218 7,382,655 4,303,265 Other contributions and donations 10,760,085 5,436,152 923,088 Development charges and developer contributions earned 29,204,180 2,915,766 7,160,454 Contributed tangible capital assets 10(i) — 3,047,542 4,522,900 Investment income 525,000 630,296 1,164,835 Penalties and interests on taxes 2,415,000 3,504,311 2,694,486 Fines 722,000 661,988 771,141 Interest on promissory notes 5(c) 1,035,350 1,035,800 1,035,350 Sale of land — — 101,294 Casino revenue 4,000,000 5,575,176 — Equity share of Elexicon Corporation earnings 4(b) — 4,876,212 3,206,200 Other 266,058 537,539 389,420 149,768,317 125,158,312 113,237,579 Expenses 19 General government 23,413,285 23,612,658 21,056,822 Protection to persons and property 29,673,578 27,945,517 27,230,041 Transportation services 15,098,725 14,996,975 14,342,228 Environmental services 3,082,114 2,743,525 2,895,227 Social and family services 1,163,291 645,439 746,248 Recreational and cultural services 29,802,037 26,142,900 26,222,267 Planning and development 5,547,859 3,640,971 3,406,437 Loss on disposal of tangible capital assets — 202,363 51,316 107,780,889 99,930,348 95,950,586 Annual surplus 41,987,428 25,227,964 17,286,993 Accumulated surplus, beginning of year 442,040,633 442,040,633 424,753,640 Accumulated surplus, end of year 484,028,061 467,268,597 442,040,633 The accompanying notes are an integral part of the consolidated financial statements. DRAFT - FOR DISCUSSION ONLY Page 4 The Corporation of the City of Pickering Consolidated statement of change in net financial assets Year ended December 31, 2021 2021 2020 Budget Actual Actual $ $ $ (Note 18) Annual surplus 41,987,428 25,227,964 17,286,993 Acquisition of tangible capital assets (72,286,800) (32,186,500) (29,021,454) Amortization of tangible capital assets 11,721,800 11,710,898 11,958,685 Loss on disposal of tangible capital assets — 202,363 51,316 Proceeds on disposal of tangible capital assets — 109,082 223,481 (18,577,572) 5,063,807 499,021 Transfer of assets under construction to tangible capital assets — 6,460,299 1,237,667 Assets under construction expensed — 3,661,341 53,605 — 10,121,640 1,291,272 Acquisition of inventory of supplies — (935,105) (732,948) Use of inventory of supplies — 868,719 739,357 Acquisition of prepaid expenses — (84,198) (312,406) Use of prepaid expenses — 357,734 326,624 — 207,150 20,627 Change in net financial assets (18,577,572) 15,392,597 1,810,920 Net financial assets, beginning of year 150,947,060 150,947,060 149,136,140 Net financial assets, end of year 132,369,488 166,339,657 150,947,060 The accompanying notes are an integral part of the consolidated financial statements. DRAFT - FOR DISCUSSION ONLY Page 5 The Corporation of the City of Pickering Consolidated statement of cash flows Year ended December 31, 2021 2021 2020 $ $ Operating transactions Annual surplus 25,227,964 17,286,993 Non-cash items Amortization of tangible capital assets 11,710,898 11,958,685 Loss on disposal of tangible capital assets 202,363 51,316 Equity share of Elexicon Corporation (4,876,212) (3,206,200) Contributed tangible capital assets recorded in revenue (3,047,542) (4,522,900) Change in non-cash operating items Taxes receivable 3,477,546 (5,451,131) Accounts receivable (4,230,881) 1,477,359 Accounts payable and accrued liabilities (340,886) 11,776,098 Other current liabilities 61,087 (13,636) Deferred revenue 10,886,181 9,937,372 Post-employment benefit liability 1,196,389 634,182 WSIB benefit liabilities 185,173 722,577 Inventory (66,386) 6,409 Prepaid expenses 273,536 14,218 40,659,230 40,671,342 Capital transactions Acquisition of tangible capital assets (net of transfers and contributions) (19,017,318) (23,207,282) Proceeds on disposal of tangible capital assets 109,082 223,481 (18,908,236) (22,983,801) Investing transactions Increase in investments (24,502,734) (47,790,863) Dividends received from Elexicon Corporation 3,172,745 3,152,067 (21,329,989) (44,638,796) Financing transactions Proceeds from debentures issued 15,568,000 1,856,000 Principal repayment of debentures (3,944,385) (3,557,342) Decrease in note receivable 291,229 282,699 11,914,844 (1,418,643) Increase (decrease) in cash and cash equivalents 12,335,849 (28,369,898) Cash and cash equivalents, beginning of year 81,028,753 109,398,651 Cash and cash equivalents, end of year 93,364,602 81,028,753 Cash and cash equivalents consists of Cash 68,432,602 33,395,753 Cash equivalents 24,932,000 47,633,000 93,364,602 81,028,753 The accompanying notes are an integral part of the consolidated financial statements. DRAFT - FOR DISCUSSION ONLY Page 6 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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 - FOR DISCUSSION ONLY Page 7 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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. . DRAFT - FOR DISCUSSION ONLY Page 8 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (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 (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) Casino revenue The City is a beneficiary of a contribution agreement with Ontario Lottery and Gaming Corporation (OLG) for hosting a casino within the municipality. Pickering is entitled to receive a share of the gaming revenue on a quarterly basis for hosting the Pickering Casino Resort which opened on July 26, 2021. Casino revenue is recognized as earned in line with the contribution agreement. (xii) Intangible assets Intangible assets are not recognized as assets in the financial statements. DRAFT - FOR DISCUSSION ONLY Page 9 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 1. Significant accounting policies (continued) (b) Basis of accounting (continued) (xiii)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. (xiv)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. (xv) 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: 2021 2020 Region School board Region School board $$ $$ Taxation 128,126,225 47,751,880 123,410,198 50,621,485 Payments in lieu of taxes 6,090,166 346,689 5,912,908 358,363 134,216,391 48,098,569 129,323,106 50,979,848 Page 10 DRAFT - FOR DISCUSSION ONLY The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 3. Investments 2021 2020 Cost Market value Cost Market value $$ $$ Investments 140,255,810 140,364,738 115,753,076 116,513,133 Investments are comprised of deposit notes, bonds, and guaranteed investment certificates. 4. Investment in government business enterprise (a) Elexicon Corporation was formed on April 1, 2019, in which 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 and conducts non-regulated utility service ventures through its subsidiaries. DRAFT - FOR DISCUSSION ONLY Page 11 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 4. Investment in government business enterprise (continued) (a) The following table provides condensed supplementary consolidated financial information for Elexicon Corporation and its subsidiaries as at and for the period ended December 31, 2021. The amounts are disclosed in thousands of dollars: 2021 2020 (000’s) (000’s) $ $ Assets Current 104,266 98,525 Capital and intangibles 584,949 535,401 Other 341 161 Total assets 689,556 634,087 Regulatory balances 39,164 26,912 Total assets and regulatory balances 728,720 660,999 Liabilities Current 85,153 88,743 Long-term debt 258,526 214,502 Other 132,520 110,913 Total liabilities 476,199 414,158 Shareholders’ equity Share capital 97,692 97,692 Contributed capital 25 25 2019 Contributed Surplus 79,301 79,301 Accumulated other comprehensive loss (1,257) (1,815) Retained earnings 75,354 69,802 Total equity 251,115 245,005 Regulatory balances 1,406 1,836 Total liabilities, equity and regulatory balances 728,720 660,999 2021 2020 (000’s) (000’s) $ $ Comprehensive income Commodity revenue 417,285 473,986 Commodity expenses (426,225) (480,262) Distribution revenue 84,070 79,380 Operating expenses (69,322) (64,189) Other expense (1,560) (8,955) Accumulated other comprehensive loss 558 (999) Net movements in regulatory balances, net of tax 12,684 12,539 Total comprehensive income for the year 17,490 11,500 DRAFT - FOR DISCUSSION ONLY Page 12 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 4. Investment in government business enterprise (continued) (b) Equity in Elexicon Corporation The City’s equity in Elexicon Corporation is as follows at the end of 2021: 2021 2020 $ $ Balance, beginning of year 96,430,956 96,376,823 Equity share of net earnings from Elexicon Corporation 4,876,212 3,206,200 Dividend received (3,172,745) (3,152,067) Balance, end of year 98,134,423 96,430,956 (c) City of Pickering’s investment is represented by: 2021 2020 $ $ 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 12,849,416 Accumulated earnings 65,058,065 60,181,853 Accumulated dividends received (39,196,982) (36,024,237) Adjustment to value of investment 815,708 815,708 70,022,403 68,318,936 (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 $40,000,000 per occurrence for liability insurance, $21,000,000 for vehicle insurance and $198,798,000 for property insurance and $12,000,000 for privacy, cyber, and network security insurance. DRAFT - FOR DISCUSSION ONLY Page 13 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 4. Investment in government business enterprise (continued) (d) Contingencies and guarantees of Elexicon Corporation (the “Corporation”) as disclosed in their consolidated financial statements are as follows: (continued) (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 nil in 2021 ($2,135,000 in 2020) to Hydro One and recognized the same as an intangible asset. 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. (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 letters of credit for $807,000 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: $ 2022 217,000 2023 177,000 2024 124,000 2025 95,000 2026 71,000 Thereafter 44,000 728,000 DRAFT - FOR DISCUSSION ONLY Page 14 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 5. Promissory notes receivable 2021 2020 $ $ Elexicon Corporation 7,095,000 7,095,000 Elexicon Energy 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, 2022. (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 $1,035,800 ($1,035,350 in 2020). 6. Deferred revenue 2021 2020 $ $ Obligatory reserve funds Development charges 77,078,827 69,376,247 Parkland 8,631,353 8,321,222 Federal gas tax 10,996,128 8,063,995 Third party/Developer's contributions reserve fund 3,358,782 3,218,778 100,065,090 88,980,242 Other unearned revenues 5,030,469 5,229,136 105,095,559 94,209,378 DRAFT - FOR DISCUSSION ONLY Page 15 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 6. Deferred revenue (continued) Continuity of deferred revenue is as follows: 2021 2020 $ $ Balance, beginning of year 94,209,378 84,272,006 Restricted funds received 15,916,281 16,968,168 General funds received 3,239,001 3,414,767 Interest earned (restricted funds) 1,045,285 1,385,545 20,200,567 21,768,480 Earned restricted revenue transferred to operations 5,876,718 9,762,200 Earned revenue transferred to operations 3,437,668 2,068,908 9,314,386 11,831,108 Balance, end of year 105,095,559 94,209,378 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 0.50% to 2.50% and various payment terms ranging from 2 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: 2021 2020 $ $ Roads 486,000 768,398 Community facilities, libraries and parks 80,804 515,265 Protection services — 173,385 566,804 1,457,048 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, 2020, with projections for December 31, 2021. DRAFT - FOR DISCUSSION ONLY Page 16 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 8. Post-employment benefits liability (continued) (a) Post-employment benefits liability (continued) Plan amendment In the current year, a benefit plan amendment was made to extend coverage for a restricted group of retirees effective January 1, 2021. The impact of the plan addition, has been recognized immediately as a plan amendment cost and shown in the table below. Information about the City’s benefits liability is as follows: 2021 2020 $ $ Accrued benefits liability, beginning of year 7,505,863 6,871,681 Current service costs 670,900 599,463 Plan mmendment 593,898 — Interest on accrued benefits 354,203 417,634 Amortization of actuarial losses 557,421 564,657 Benefits paid during the year (980,033) (947,572) Accrued benefits liability, end of year 8,702,252 7,505,863 Accrued benefit obligation 12,006,466 11,367,498 Unamortized actuarial losses (3,304,214) (3,861,635) Accrued benefits liability, end of year 8,702,252 7,505,863 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, 2021 of the future benefits was determined using a discount rate of 3.00% (3.00% in 2020). (ii) Dental costs The dental cost trend rate was 3.75% (3.75% in 2020) increase per annum. (iii) Health costs Health costs were assumed to increase at 5.43% (5.76% in 2020) and decrease by 0.33% (0.33% in 2020) increments per year to an ultimate rate of 3.75% per year in 2027 and thereafter. DRAFT - FOR DISCUSSION ONLY Page 17 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 8. Post-employment benefits liability (continued) (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, 2020, with projections for December 31, 2021. Information about the City’s WSIB benefit liability is as follows: 2021 2020 $ $ Accrued WSIB liability, beginning of year 2,691,240 1,968,663 Survivor award — 674,288 Current service cost 192,771 136,396 Interest on accrued benefits 92,191 91,793 Amortization of actuarial losses 31,561 30,254 Benefits paid during the year (131,350) (210,154) 2,876,413 2,691,240 Accrued benefit obligation 3,195,939 3,042,327 Unamortized actuarial losses (319,526) (351,087) Accrued benefits liability, end of year 2,876,413 2,691,240 The main actuarial assumptions employed in the actuarial valuations are as follows: (i) Discount rate The present value as at December 31, 2021 of the future benefits was determined using a discount rate of 3.0% (3.0% in 2020). (ii) Inflation rate The rate of inflation was assumed to be 2.50% (2.50% in 2020) per annum. (iii) WSIB Administration Rate Liabilities for WSIB benefits have been increased to 27% to reflect the administration rate charged by WSIB. A WSIB Reserve Fund was established in 2001. The Reserve Fund balance as at December 31, 2021 (Note 11) was $4,000,001 ($4,090,017 as at December 31, 2020). In 2021, the City established an Excess Indemnity Reserve Fund in lieu of purchasing an insurance policy for this type of coverage. The balance in that Reserve Fund as at December 31, 2021 is $722,763. In addition, the City purchased an insurance policy to protect the City against significant claims. The occupational accident insurance pays loss claims up to $500,000 per work related accident. DRAFT - FOR DISCUSSION ONLY Page 18 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 9. Long-term liabilities (a) The balance of long-term liabilities is made up of the following: 2021 2020 $ $ 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 40,742,259 29,118,644 (b) The above long-term liabilities have maturity dates of July 12, 2022, October 16, 2023, July 2, 2029, October 17, 2026 and 2031, October 13, 2022, 2027, 2032 and 2037, September 14, 2023, 2028, 2033 and 2038, November 29, 2024, 2029 and 2039, October 2, 2030 and November 26, 2036 and 2041 with various interest rates ranging from 0.45% to 3.80%. Principal repayments are summarized as follows: $ 2022 3,610,998 2023 3,460,597 2024 2,981,801 2025 2,969,889 2026 3,034,500 Thereafter 24,684,474 40,742,259 (c) Long-term liabilities include principal sums of $443,000 ($952,000 in 2020) 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 $797,289 ($840,892 in 2020). DRAFT - FOR DISCUSSION ONLY Page 19 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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 2021 amounted to $3,047,542 ($4,522,900 in 2020). (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 $24,218,983 ($20,141,455 in 2020). During the year, there were nil write-downs of assets (nil in 2020) and nil interest was capitalized during the year (nil in 2020). (v) Land held for resale As at December 31, 2021, deposits of $1,645,965 ($1,697,050 in 2020) towards five parcels of land are included within prepaid expenses. DRAFT - FOR DISCUSSION ONLY Page 20 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 10. Tangible capital assets (continued) Machinery Information Library Furniture and technology collection and Land Buildings equipment Vehicles Infrastructure hardware materials fixtures $ $ $ $ $ $ $ $ Cost Balance, beginning of year 62,775,373 115,679,847 11,848,721 16,550,956 302,667,388 2,102,277 2,011,544 1,286,472 Add Additions during the year 1,705,683 1,271,602 328,463 31,490 14,070,358 198,992 313,184 67,560 Less Disposals/transfers during the year 75,268 222,803 572,401 230,576 1,097,129 104,497 363,519 6,029 Balance, end of year 64,405,788 116,728,646 11,604,783 16,351,870 315,640,617 2,196,772 1,961,209 1,348,003 Accumulated amortization Balance, beginning of year — 52,576,260 6,226,857 8,327,089 176,312,269 1,448,112 1,061,081 516,001 Add Amortization — 4,157,181 924,022 1,269,619 4,695,615 248,223 332,443 83,795 Less Accumulated amortization on disposals — 207,696 508,305 214,130 960,696 104,497 363,519 1,934 Balance, end of year — 56,525,745 6,642,574 9,382,578 180,047,188 1,591,838 1,030,005 597,862 Net book value of tangible capital assets 64,405,788 60,202,901 4,962,209 6,969,292 135,593,429 604,934 931,204 750,141 Page 21 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 10. Tangible capital assets (continued) Machinery Information Library Furniture Assets and technology collection and under Land Buildings equipment Vehicles Infrastructure hardware materials fixtures construction 2020 $ $ $ $ $ $ $ $ $ $ Cost Balance, beginning of year 56,131,344 116,110,819 11,474,029 15,322,005 294,284,392 2,315,390 2,173,665 1,219,298 12,912,198 511,943,140 Add Additions during the year 6,644,029 1,451,112 858,786 1,577,624 9,460,780 190,288 251,132 67,174 8,520,529 29,021,454 Less Disposals/transfers during the year 1,882,084 484,094 348,673 1,077,784 403,401 413,253 — 1,291,272 5,900,561 Balance, end of year 62,775,373 115,679,847 11,848,721 16,550,956 302,667,388 2,102,277 2,011,544 1,286,472 20,141,455 535,064,033 Accumulated amortization Balance, beginning 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 Add Amortization — 4,520,314 911,820 1,238,895 4,596,414 256,309 356,688 78,245 — 11,958,685 Less Accumulated amortization on disposals — 1,765,944 477,694 346,056 928,144 403,401 413,253 — — 4,334,492 Balance, end of year — 52,576,260 6,226,857 8,327,089 176,312,269 1,448,112 1,061,081 516,001 — 246,467,669 Net book value of tangible capital assets 62,775,373 63,103,587 5,621,864 8,223,867 126,355,119 654,165 950,463 770,471 20,141,455 288,596,364 Page 22 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 11. Accumulated surplus The City’s accumulated surplus is comprised of the following: 2021 2020 $ $ Capital Fund 25,802,619 14,090,956 Operating Fund 125,259 125,257 Equity in Veridian Corporation 98,134,423 96,430,956 Tangible capital assets 298,638,881 288,596,364 Post-employment benefits liability (8,523,252) (7,326,863) Interfund loans (566,804) (1,457,048) Net long-term liabilities (40,742,259) (29,118,644) Note receivable soccer facility 2,681,988 2,973,217 WSIB benefit liabilities (2,876,413) (2,691,240) Reserves set aside for special purposes by Council Working capital 400,000 400,000 Self insurance 220,031 420,031 Replacement of capital equipment 1,453,707 1,530,567 Contingencies 1,903,746 1,842,591 Rate stabilization 22,105,570 22,036,255 City’s share for development charge 12,143,494 9,647,683 Continuing studies 461,206 295,448 Vehicle replacement 2,187,321 2,214,904 Land purchase 14,403 14,403 Seaton development review 1,437,822 1,437,822 Financial systems 523,308 398,308 Senior centre 2,800,000 2,100,000 Accessibility initiatives 66,840 62,740 Winter control 700,000 700,000 Sustainability initiatives 404,576 398,576 Duffin Heights 1,744,131 1,972,765 Facilities 1,478,976 588,401 Accelerated infrastructure program 519,500 519,500 Fence 510,000 420,000 Minor buildings replacement 1,500,000 1,100,000 Tennis Courts 828,565 688,565 Major Equipment 1,030,214 1,335,265 Museum Collection 12,799 12,799 Recreation Complex 225,000 75,000 Library Building 280,000 180,000 Elected Officials Insurance 210,000 140,000 Casino 5,264,652 — Public Art 350,494 71,120 Reserve funds set aside for special purpose by Council Recreation programs and facilities 395,436 391,332 Acquisition of tangible capital assets 311,943 308,706 WSIB 4,000,001 4,090,017 Animal shelter 1,301,099 914,795 Operations Centre 13,700,349 13,919,376 Roads & bridges 5,962,031 4,398,400 Stormwater management 4,277,035 3,425,064 Ontario Community Infrastructure Fund 1,088,068 743,892 Seaton infrastructure 262,578 259,854 Seaton Financial Impact Agreement 1,796,497 1,363,499 Excess Indemnity 722,763 — 467,268,597 442,040,633 DRAFT - FOR DISCUSSION ONLY Page 23 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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, 2021. The results of this valuation disclosed total actuarial liabilities as at that date of $119,342 million in respect of benefits accrued for service with actuarial assets at that date of $116,211 million indicating an actuarial deficit of $3,131 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 2021 were $4,265,448 ($4,243,661 in 2020). 13. Trust Funds Trust Funds administered by the City amounting to $383,374 ($379,695 in 2020) 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. 2021 2020 $ $ Transactions Revenue Interest on promissory notes 1,035,800 1,035,350 Property taxes levied 35,049 34,702 Expenses Electrical energy and services 1,517,686 1,618,380 Balances Accounts payable and accrued liabilities 275,118 328,978 Promissory notes receivable 25,069,000 25,069,000 DRAFT - FOR DISCUSSION ONLY Page 24 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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. DRAFT - FOR DISCUSSION ONLY Page 25 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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 2021 Budget adopted by Council on March 22, 2021 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 March 22, 2021 with adjustments as follows: 2021 Post-2021 Council Non TCA employment Budget approved expenditures benefits/ presented in budget from capital amortization statements $ $$$ Revenue Taxation 78,336,363 — — 78,336,363 Capital 47,135,250 — — 47,135,250 Other 24,296,704 — — 24,296,704 149,768,317 — — 149,768,317 Expenditures General government 20,490,090 650,000 2,273,195 23,413,285 Protection to persons and property 28,545,363 — 1,128,215 29,673,578 Transportation services 10,834,957 — 4,263,768 15,098,725 Environmental services 1,662,495 — 1,419,619 3,082,114 Social and family services 1,163,291 — — 1,163,291 Recreational and cultural services 25,530,745 255,000 4,016,292 29,802,037 Planning and development 5,545,586 — 2,273 5,547,859 93,772,527 905,000 13,103,362 107,780,889 Annual surplus (deficit) 55,995,790 (905,000) (13,103,362) 41,987,428 Capital expenditures (73,191,800) 1,387,000 — (71,804,800) Transfers from reserve and reserve funds 4,285,059 Dividend from Veridian Corporation 3,172,744 Principal repayment of debt (4,640,193) Principal repayment of PSC note 239,000 Debt proceeds 14,014,400 Prior year operating fund surplus (125,000) DRAFT - FOR DISCUSSION ONLY Page 26 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 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 - FOR DISCUSSION ONLY Page 27 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 19. Segmented information (continued) Protection Social and to persons Public works Recreational Planning and family General 2021 and property services and cultural development services government Consolidated $ $ $ $ $ $ $ Revenue Grants 27,200 2,948,944 1,145,998 — 256,404 3,004,109 7,382,655 User charges 5,772,302 328,498 1,735,944 1,534,630 17,715 1,029,248 10,418,337 Tax related revenues — — — — — 82,640,849 82,640,849 Developer and other contributions 602,092 4,960,966 1,262,308 139,790 5,062 1,381,700 8,351,918 Contributed tangible capital assets — 2,847,228 — — — 200,314 3,047,542 Casino Revenue — — — — — 5,575,176 5,575,176 Income from government business enterprise — — — — — 4,876,212 4,876,212 Other revenues 734,500 — 9,339 — — 2,121,784 2,865,623 7,136,094 11,085,636 4,153,589 1,674,420 279,181 100,829,392 125,158,312 Expenses Salaries and wages 23,693,198 6,141,149 15,485,038 3,195,434 253,736 12,108,992 60,877,547 Materials and supplies 2,513,062 4,045,676 4,876,624 223,922 139,235 9,062,089 20,860,608 Contracted services 656,321 1,262,829 562,468 221,615 185,507 1,967,647 4,856,387 Amortization 907,787 5,916,861 4,150,594 — — 735,656 11,710,898 Other 175,149 373,985 1,068,176 — 66,961 (261,726) 1,422,545 Loss on disposal of tangible capital assets — 41,424 12,726 — — 148,213 202,363 27,945,517 17,781,924 26,155,626 3,640,971 645,439 23,760,871 99,930,348 Annual (deficit) surplus (20,809,423) (6,696,288) (22,002,037) (1,966,551) (366,258) 77,068,521 25,227,964 Page 28 The Corporation of the City of Pickering Notes to the consolidated financial statements December 31, 2021 19. Segmented information (continued) Protection to persons and property $ Public works services $ Recreational and cultural $ Planning and development $ Social and family services $ General government $ 2020 Consolidated $ Revenue Grants 60,113 2,921,453 1,031,829 — 106,842 183,028 4,303,265 User charges 5,075,820 108,864 2,258,972 2,007,863 41,862 709,574 10,202,955 Tax related revenues — — — — — 79,456,677 79,456,677 Developer and other contributions 755,543 2,122,472 3,207,850 132,471 6,000 1,859,206 8,083,542 Contributed tangible capital assets — 3,993,726 — — — 529,174 4,522,900 Income from government business enterprise — — — — — 3,206,200 3,206,200 Other revenues 810,550 — 18,356 — — 2,633,134 3,462,040 6,702,026 9,146,515 6,517,007 2,140,334 154,704 88,576,993 113,237,579 Expenses Salaries and wages 23,091,692 5,884,913 15,298,073 2,913,716 290,651 11,924,042 59,403,087 Materials and supplies 2,491,930 3,783,806 5,215,226 192,592 118,546 6,764,494 18,566,594 Contracted services 582,160 1,376,837 695,766 288,802 254,012 1,241,387 4,438,964 Amortization 941,872 5,769,408 4,239,925 1,180 — 1,006,300 11,958,685 Other 122,387 422,491 773,277 10,147 83,039 120,599 1,531,940 Loss (gain) on disposal of tangible capital assets (8,518) 123,094 16,495 — — (79,755) 51,316 27,221,523 17,360,549 26,238,762 3,406,437 746,248 20,977,067 95,950,586 Annual (deficit) surplus (20,519,497) (8,214,034) (19,721,755) (1,266,103) (591,544) 67,599,926 17,286,993 Page 29