THE DISTRICT MUNICIPALITY OF MUSKOKA CORPORATE AND EMERGENCY SERVICES COMMITTEE A G E N D A

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1 THE DISTRICT MUNICIPALITY OF MUSKOKA CORPORATE AND EMERGENCY SERVICES COMMITTEE A G E N D A Meeting No. CES February 18, :00 p.m. Council Chamber, District Administration Building 1. CALL TO ORDER 2. DECLARATION OF PECUNIARY INTERESTS 3. CEREMONIAL AND INVITED PRESENTATIONS a) Grant Thornton LLP, Auditors Mike Bunn, CA Principal Re: Report to Council Initial communication on audit planning The District Municipality of Muskoka, For the year ended December 31, 2015 CES INFO-A 4. FACILITIES SERVICES a) McVittie Place Tankless Hot Water Heater Repairs Report No. CES Recommendation This report is provided for information. 5. INFORMATION TECHNOLOGY SERVICES a) Information Technology Services Cost Comparison Report No. CES Recommendation This report is provided for information. b) Information Technology Shared Services 2015 Year in Review Report No. CES Recommendation This report is provided for information.

2 6. FINANCE a) Financing Leases 2015 Annual Report Report No. CES Recommendation THAT the report on the status of the 2015 Financing Leases BE RECEIVED. b) 2016 Annual Setting of Tax Ratios and Tax Rate Reductions Report No. CES Recommendation THAT a by-law BE PREPARED setting Tax Ratios for the 2016 tax year at: Class Tax Ratio Residential 1.0 Multi Residential 1.0 Commercial 1.1 Industrial 1.1 Pipeline 0.7 Farmland 0.25 Managed Forest 0.25 AND THAT the Tax Rate Reductions for the taxation year 2016 BE SET AT: Property Type Vacant Unit Rebate for commercial and industrial properties Farmland awaiting development with a registered subdivision Farmland awaiting development with building permit issued Tax Treatment 30% reduction Taxed at 35% Taxed at 100% AND THAT the tax capping options for the Commercial, Industrial and Multi- Residential classes BE ESTABLISHED at an upper limit on annual increases at the greater of the existing 5% capped rule or 10% of previous year s annualized taxes with a minimum threshold of $250.

3 7. ADMINISTRATION a) Cancellation of Request for Proposal Contract No Electronic Document and Records Management System (EDRMS) Report No. CES Recommendation 8. NEW BUSINESS This report is provided for information. a) OPP Billing Allocation and Shared Services Discussion Requested by Councillor Furniss 9. ADJOURNMENT Recommendation THAT the Corporate and Emergency Services Committee adjourns to meet again on March 24, 2016 at 1:00 p.m. or at the call of the Chair. This agenda can be viewed in a larger font by increasing the magnification of the page. Please note that hearing-assistive devices are available in the Council Chamber.

4 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, 2015 Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

5 CES INFO-A February 18, 2016 Grant Thornton LLP Suite West Street North Orillia, ON L3V 5B8 T (705) F (705) To the members of Committee of The District Municipality of Muskoka We re pleased to enclose our Report to Council Initial communication on audit planning. The purpose of this document, and our upcoming meeting to discuss its content, is to initiate effective two way communication with you regarding our financial statement audit engagement of The District Municipality of Muskoka (hereinafter the District ) for the year ending December 31, This communication will assist the Council in understanding the terms of the audit engagement; our proposed audit strategy and the level of responsibility assumed by Grant Thornton LLP under Canadian auditing standards (CAS). This communication has been prepared to comply with the requirements outlined in CAS 260 Communication with those Charged with Governance. The information in this document is intended solely for the information and use of Council and management. It is not intended to be distributed or used by anyone other than these specified parties. If you have any particular comments, concerns or additional expectations that may require us to undertake additional work over and above that which is currently contemplated, please do not hesitate to raise them at our next scheduled meeting. Yours sincerely, Grant Thornton LLP Mike Bunn, CPA, CA Principal

6 CES INFO-A Contents Page The District Municipality of Muskoka Environmental scan changes in business, regulations and standards 1 Achieving effective governance 3 Quality assurance, independence and communication 4 Our audit approach 5 Client service team 10 Audit timetable 11 Fee schedule 12 Appendix A Accounting developments Error! Bookmark not defined. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

7 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, The District Municipality of Muskoka Environmental scan changes in business, regulations and standards We consider all relevant factors when preparing an audit plan specifically tailored to your municipality. The following is a summary of recent changes to the District s business environment, regulatory environment in which it operates, and relevant accounting and auditing standards. We have considered these factors in preparing the audit plan for the District. District-specific changes As part of our audit planning, we have discussion with management and staff in various departments to determine if there have been any significant changes that would impact our audit approach. We noted no significant changes in the processing of revenue, employee compensation and operating expenses. Our planning for the other audits performed as part of our contract did not identify any other significant matters impacting our approach for the 2015 audit of the District. Broader business environment Global economic uncertainty and market volatility are becoming a way of life and the global economy remains weak. Difficult economic times raise operating and financial concerns for entities coping with tighter credit markets and heightened external scrutiny. Even with some positive economic news over the past year suggesting modest recovery is underway, major banks have been reluctant to raise interest rates significantly, suggesting that economists and policy makers around the globe remain cautious on the place of worldwide economic recovery, particularly in light of growing sovereign debt throughout much of the developed world. These risks are taken into consideration when we plan and execute your audit. Accounting standards Accounting standards issued by the Accounting Standards Board which may affect your business in the current year and future years include: Section PS 3450 Financial Instruments, Section PS 2601 Foreign currency translation and Section PS 1201 Financial statement presentation Section PS 3260 Liability for contaminated sites Section PS 2200 Related party disclosures Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

8 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Section PS 3420 Inter-entity transactions Section PS 3210 Assets Section PS 3320 Contingent Assets Section PS 3380 Contractual rights Section PS 3430 Restructuring transactions Further details of the changes to accounting standards, including management s preliminary comments on their applicability to the District, are included in Appendix A. If you have any questions about these changes we invite you to raise them during our next meeting. We will be pleased to address your concerns. Auditing standards Canadian Auditing Standards are in effect for the current year-end and will constitute Canadian Generally Accepted Auditing Standards (GAAS). These standards have been incorporated into Grant Thornton s audit approach. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

9 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Achieving effective governance There are several fundamental components of effective governance. The audit committee plays a key role in achieving strong governance, particularly with respect to financial reporting. The Council helps set the tone for the District by emphasizing honesty, ethical behaviour and fraud prevention Roles in ensuring strong financial reporting Role of Council Help set the tone for the organization by emphasizing honesty, ethical behaviour and fraud prevention Oversee management, including ensuring that management establishes and maintains internal controls to provide reasonable assurance regarding reliability of financial reporting Approve the nomination and compensation of external auditors Directly oversee the work of the external auditors including reviewing and discussing the audit plan Review and approve annual financial statements Role of management Role of Grant Thornton LLP Prepare financial statements in accordance with Canadian public sector accounting standards Design, implement and maintain effective internal controls over financial reporting processes, including controls to prevent and detect fraud Exercise sound judgment in selecting and applying accounting policies Safeguard assets Prevent, detect and correct errors, including those caused by fraud Provide representations to external auditors Assess quantitative and qualitative impact of misstatements discovered during the audit on fair presentation of the financial statements Provide an audit opinion that the financial statements are in accordance with Canadian public sector accounting standards Conduct our audit in accordance with Canadian GAAS Maintain independence and objectivity Be a resource to management and Council Communicate matters of interest to Council Establish an effective two-way communication with Council and management, to report matters of interest to them and obtain their comments on audit risk matters Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

10 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Quality assurance, independence and communication Grant Thornton LLP has a robust quality control program Quality control Grant Thornton LLP has a robust quality control program that forms a core part of our client service. We combine internationally developed audit methodology, advanced technology, rigorous review procedures, mandatory professional development requirements, and the use of specialists to deliver high quality audit services to our clients. In addition to our internal processes, we are subject to inspection and oversight by standard setting and regulatory bodies. We are proud of our firm s approach to quality control and would be pleased to discuss any aspect with you at your convenience. Independence We have a rigorous process where we continually monitor and maintain our independence. The process of maintaining our independence includes, but is not limited to Identification of threats to our independence and putting into place safeguards to mitigate those threats. For example, we evaluate the independence threat of any non-audit services provided to the entity; We have identified no information regarding our independence that in our judgement should be brought to your attention. Throughout the audit process we encourage you to contact us if there are any questions or concerns Communication with Council Effective and timely communication is key to quality service. In conducting our audit we will communicate frequently with Council so that issues and concerns are addressed in a timely and productive manner. We also require Council s input and perspective on various risk assessment matters such as fraud risk, compliance with laws and regulations and we welcome your view on the District s system of internal controls. We encourage Council to contact us at any time if questions or concerns arise. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

11 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Our audit approach An understanding of the District and your business drives the Grant Thornton LLP audit approach. The audit methodology is risk based and specifically tailored to The District Municipality of Muskoka as depicted below: Our tailored audit approach results in procedures designed to respond to an identified risk. The greater the risk of material misstatement associated with the account, class of transactions or balance, the greater the audit emphasis placed on it in terms of audit verification and analysis. Throughout the execution of the audit approach, we will maintain our professional scepticism, recognizing the possibility that a material misstatement due to fraud could exist not withstanding our past experiences with the District or our beliefs about management s honesty and integrity. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

12 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Other communications As a result of our audit process we will communicate in our results report information on the following matters: Misstatements, other than trivial errors; Fraud; Misstatements that may cause future financial statements to be materially misstated; Illegal or possibly illegal acts, other than those considered inconsequential; and Material weaknesses and significant deficiencies in internal control over financial reporting. Internal control Our audit includes gaining an understanding of the District s internal control over financial reporting. Our understanding will focus on processes associated with the identified risk areas (see below). We use this understanding to determine the nature, extent and timing of our audit procedures. Our understanding may also result in valuable internal control findings for your consideration. Note that the auditor s objectives with regards to internal control are different from those of management and Council. For example, we primarily target controls that relate to financial reporting and not those that relate to the District s operations or compliance which may also be relevant to the District s objectives. Therefore, management and Council cannot solely rely on our findings to discharge their responsibilities in this area. Risk assessment Our risk assessment process has identified the following areas where we will focus our attention: Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

13 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Risk area Payables understated or not recorded in the correct period (Expenses completeness) Contingent liability from environmental matters unrecognized (Expenses existence/occurrence) Recorded tax revenues and receivables not valid. (Tax Revenues existence/occurrence) Recorded grant revenues and receivables not valid (Grant Revenues completeness) Recorded water and sewer revenues and receivables not valid. (Water and Sewer Revenues existence/occurrence) Audit procedures Trace the last payments for the current year and the first payments for the subsequent year and validate that they are recognized in the correct period. Perform a search for unrecorded liabilities. Inquire with the appropriate personnel regarding events or conditions that may give rise to contingencies and corroborate by obtaining supporting documentation for example site assessments, environmental impact studies, etc. Obtain an understanding of management s process for the determination of any estimates. Determine the appropriateness of the data used to create estimates by agreeing to supporting documentation. Analytical review of tax revenues based on expectations. Recalculation of the net tax revenues based on verified assessment rolls and approved tax rates. Confirmation and review of subsequent receipts of taxes receivable. Perform subsequent receipting testing and agree to supporting documentation. Analytical assessment of water and sewer revenues based on expectations. Provision for employee benefits Review the assumptions used by management Test supporting documentation (i.e. actuarial valuations) relating to the various amounts and disclosures Materiality The purpose of our audit is to provide an opinion as to whether your financial statements are prepared, in all material respects, in accordance with Canadian accounting standards for public sector entities as of December 31, Therefore, materiality is a critical auditing concept and as such we apply it in all stages of the engagement. The concept of materiality recognizes that the audit team cannot verify every balance, transaction or judgment made in the financial reporting process. During audit planning, we made a preliminary assessment of materiality for the purpose of developing our audit strategy, including the determination of the extent of our audit procedures. During the completion stage, we consider not only the quantitative assessment of materiality, but also qualitative factors, in assessing the impact on the financial statements, our audit opinion and the matters reported to your attention. Fraud can occur in any municipality, at any time, and can be perpetrated by anyone. Fraud risk factor considerations We are responsible for planning and performing the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement caused by error or by fraud. Our responsibility includes: Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

14 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, We would like to obtain your input on these matters. The identification and assessment of the risks of material misstatement of the financial statements due to fraud through procedures including discussions amongst the audit team and specific inquires of management; Obtaining sufficient appropriate audit evidence to respond to the fraud risks noted; and Responding appropriately to any fraud or suspected fraud identified during the audit. With this regard, we are required to communicate with Council on fraud-related matters, including: Obtaining an understanding of how you exercise oversight of management's processes for identifying and responding to the risks of fraud at the District and the internal control that management has established to mitigate these risks. Inquiring as to whether you have knowledge of any actual, suspected or alleged fraud affecting the District. The following provides a summary of some of the fraud related procedures we plan to perform during the audit: Test the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements. Review accounting estimates for biases. Evaluate the business rationale (or the lack thereof) for significant transactions that are or appear to be outside the normal course of business. We would like to obtain your input on these matters. Laws and regulations During the course of our audit, we will perform specified audit procedures to help identify instances of non-compliance with laws and regulations that may have a material effect on the financial statements. An audit of financial statements is not designed to detect all instances of non-compliance with laws and regulations and does not represent an audit of the District s compliance with applicable laws and regulations. In this respect, we would like to know if you are aware of instances of the entity not being in compliance with laws and regulations. Client assistance and readiness Client assistance and readiness are integral to the successful meeting of our targeted report release date. As presented further below, it is also critical in meeting our agreed fee. To facilitate the communication process, we have provided management with a letter detailing expected assistance and the critical milestone dates. We are committed to executing our audit in a most effective, efficient and timely manner Deliverables We are committed to executing our audit in a most effective, efficient and timely manner. We will provide the following deliverables to Council: Initial communication on audit planning; Audit report on the financial statements of the District Municipality of Muskoka; Communication of audit results; Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

15 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Management letter that provides our observations and recommendations regarding internal controls based on matters identified during the course of our audit Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

16 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Client service team We have assembled a team of outstanding professionals to demonstrate our commitment to quality and service to the entity. Engagement member Role Phone Mike Bunn Engagement Lead Mike.Bunn@ca.gt.com Samantha Bialas Audit senior Samantha.Bialas@ca.gt.com Catherine Bristow Audit senior Catherine.Bristow@ca.gt.com Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

17 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Audit timetable Week of October 5, 2015 November 23 and 24, 2015 December 31, 2015 February 18, 2016 Weeks of May 2, 2016 to May 18, 2016 May 2016 June 2016 Audit planning Interim visit Date for all confirmations, including bank, taxes receivable, loans, etc. Meeting with those charged with governance and presentation of Report to those charged with governance Initial Communication on Audit Planning Year-end visit Preliminary clearance to be provided on draft consolidated financial statements Meeting with Council and presentation of Report to Council Communication of Audit Results Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

18 CES INFO-A Report to Council Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Fee schedule Our approach to dealing with fees is to avoid surprises Service Current period proposed/estimated fees Prior period actual fees The District Municipality of Muskoka $ 42,500 $ 42,000 Non-profit housing corporation tax returns Social Assistance Audits 4 Financial Statements 4,500 4,400 Total (before applicable taxes) $ 47,600 $ 47,000 Fee proposal considerations Upfront and periodic discussions are central to our approach in dealing with fees. Our goal is to avoid surprises by having early and frank communication. We wish to provide the District with a competitive price and fair value, while also allowing sufficient audit hours to conduct an effective audit and deliver quality service. We have established a proposed fee for the audit for the year ended December 31, 2015 that is based on the level of activity and the anticipated complexity of the audit of the entity s financial statements. The proposed fee is based on receiving the following from management: Draft financial statements including the notes to the financial statements, All working papers and schedules as outlined in our requirements letter, Trial balance together with reconciled control accounts, All books and records made available to us when requested, and Use of the District s staff to help us locate information and provide explanations. Our ability to deliver the services outlined in the agreed timetable and our proposed fee will depend upon these schedules being available/tasks being completed by the due dates. If there are any variances to the above plan, we will discuss them with you and agree on any additional fees before costs are incurred, wherever possible. Any unforeseen work outside the scope of this proposal will be billed separately after discussion with appropriate District officials and/or the Council. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

19 CES INFO-A Report to those charged with governance Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Appendix A PSAB Accounting developments Public Sector Accounting Board Introduction to Public Sector Accounting (PSA) Handbook The Introduction to PSA Handbook directs the frameworks applicable to public sector entities. Government business enterprises must apply the standards applicable to publicly accountable enterprises (PAEs) which is Part I of the CPA Canada Handbook Accounting International Financial Reporting Standards (IFRS). Rate regulated GBEs can defer adoption of these standards until fiscal years beginning on or after January 1, Earlier adoption is permitted. Introduction to PSA Handbook The Introduction has been amended to add a new type of public sector entity called a government component. A government component is an integral part of a government, such as a department, ministry or fund, that is not a separate entity with the power to contract in its own name and that can sue and be sued. Government components that want to prepare general purpose financial statements must apply the standards for governments in the PSA Handbook. As a result of adding the definition of a government component, the definition of a government organization was amended. A government organization is any organization controlled by a government that is a separate entity with the power to contract in its own name and that can sue and be sued. Government organizations include government business enterprises (GBEs), government not-for-profit organizations (GNFPOs) and other government organizations (OGOs). As a result of the change in the definition of a government organization, some entities that were formerly classified as GNFPOs or OGOs may now be classified as government components which may result in a change in the accounting framework that they are required to apply. Government business partnerships (GBPs) between two or more public sector entities that want to issue general purpose financial statements must apply the standards for PAEs in Part I of the CPA Canada Handbook Accounting - IFRS. Non-business government partnerships between two or more public sector entities that want to issue general purpose financial statements would normally apply the PSA Handbook, unless it does not meet the needs of the partnership s financial statement users. In that case the partnership can apply, the standards applicable to PAEs in Part I of the CPA Canada Effective date Fiscal periods beginning on or after January 1, 2015 Earlier adoption is permitted. Government components that adopt the PSA standards - Fiscal periods beginning on or after January 1, Earlier adoption is permitted. GBPs that adopt the standards applicable to PAEs - Fiscal periods beginning on or after January 1, Earlier adoption is permitted. Government partnerships, other than GBPs, that determine the standards applicable to PAEs are most appropriate for their partnership - Fiscal periods beginning on or after January 1, Earlier adoption is permitted. Government components, GBPs and other government partnerships that expect to change their Management assessment of applicability Management is assessing the applicability Management is assessing the applicability Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

20 CES INFO-A Report to those charged with governance Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Public Sector Accounting Board Handbook Accounting IFRS. Factors to consider in assessing users' needs include, but are not limited to, whether the partnership: has issued, or is in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market; holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses; has commercial-type operations and substantially derives its revenue from these activities; and receives limited government assistance on an ongoing basis. Government components and government partnerships that adopt the PSA Handbook must account for the transition retroactively, with the restatement of prior periods in accordance with Section PS 2125 First-time Adoption. Effective date basis of accounting must disclose this fact in the periods preceding the period the change becomes effective. Management assessment of applicability Section PS 3450 Financial instruments, Section PS 2601 Foreign currency translation and Section PS 1201 Financial statement presentation PS 3450 Financial instruments is a new section that establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. PS 2601 Foreign currency translation revises and replaces Section PS 2600 Foreign currency translation. PS 1201 Financial statement presentation revises and replaces Section PS 1200 Financial statement presentation. PS 3041 Portfolio investments revises and replaces Section PS 3040 Portfolio investments. The issuance of these new sections also includes consequential amendments to Introduction to accounting standards that apply only to government not-for-profit organizations PS 1000 Financial statement concepts PS 1100 Financial statement objectives PS 2125 First-time adoption by government organizations PS 2500 Basic principles of consolidation PS 2510 Additional areas of consolidation PS 3050 Loans receivable PS 3060 Government partnerships Section PS 3070 Investments in government business enterprises PS 3230 Long-term debt PS 3310 Loan guarantees PS 4200 Financial statement presentation by not-forprofit organizations PSG-6 Including results of organizations and partnerships applying fair value measurement was withdrawn as a result of the issuance of these sections. The new requirements are all required to be applied at the same time. For governments - Fiscal years beginning on or after April 1, For government organizations that applied the CPA Canada Handbook Accounting prior to their adoption of the CPA Canada Public Sector Accounting Handbook - Fiscal years beginning on or after April 1, For all other government organizations - Fiscal years beginning on or after April 1, This effective date was changed in May 2013 from fiscal years beginning on or after April 1, Earlier adoption is permitted. Management will apply the new standards in the fiscal year ending December 31, 2017 Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

21 CES INFO-A Report to those charged with governance Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Public Sector Accounting Board Section PS 3260 Liability for contaminated sites This Section establishes the recognition, measurement and disclosure requirements for reporting liabilities associated with remediation of contaminated sites. The Section does not deal with tangible capital asset retirement obligations, liabilities associated with the disposal or sale of a tangible capital asset and acquisition/betterment costs for tangible capital assets that are less than the future economic benefits. An entity will be required to recognize a liability if they have contamination at a site that exceeds an environmental standard, the entity is responsible/accepts responsibility, the entity expects to have to give up future economic benefits and the amount can be reasonably estimated. If an entity cannot reasonably estimate the amount, they must still provide disclosures concerning the liability. Section PS 2200 Related party disclosures This Section defines a related party. It also establishes the disclosures required for related party transactions, including disclosure of information about an entity s related party transactions and the relationship between the related parties when the transactions: have occurred at a value different from that which would have been arrived at if the parties were unrelated; or have or could have, a material financial effect on the financial statements. Section PS 3420 Inter-entity transactions This Section establishes how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective (i.e., related parties within a government reporting entity). The main features of the new Section are: Transactions are measured at their carrying amounts, except in specific circumstances. Cost allocation and recovery is the allocation of costs of activities associated with providing goods or services to another entity and the recovery of the costs incurred from the other entities. Under a policy of cost allocation, revenues and expenses are recognized on a gross basis. Unallocated costs are the cost of resources recorded by the providing entity in its operating activities that are incurred on behalf of a recipient entity, A recipient may choose to recognize unallocated costs for the provision of goods and services and measure them at their carrying amount, fair value or other amount dictated by policy, accountability structure or budget practice. The transfer of an asset or liability for nominal or no consideration is measured by the provider at its carrying amount and by the recipient at its carrying amount or fair value. Inter-entity transactions must be disclosed in accordance with Section PS 2200 Related party disclosures. Effective date Fiscal years beginning on or after April 1, Earlier adoption is encouraged. Fiscal years beginning on or after April 1, Earlier adoption is permitted. Fiscal years beginning on or after April 1, Earlier adoption is permitted. Management assessment of applicability Management is reviewing all sites on a case-by-case basis. Management will apply the new standard to any cases identified in the fiscal year ending December 31, Management will apply the new standard in the fiscal year ending December 31, 2017 Management will apply the new standard in the fiscal year ending December 31, 2017 Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

22 CES INFO-A Report to those charged with governance Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Public Sector Accounting Board Section PS 3210 Assets This new Section provides guidance for applying the definition of assets set out Section PS 1000 Financial statement concepts and establishes general disclosure standards for assets. Disclosure of information about the major categories of assets that are not recognized is required. When an asset is not recognized because a reasonable estimate of the amount involved cannot be made, the reason(s) for this should be disclosed. Section PS 3320 Contingent assets This new Section defines and establishes disclosure standards for contingent assets. Contingent assets are possible assets arising from existing conditions or situations involving uncertainty. That uncertainty will ultimately be resolved when one or more future events not wholly within the public sector entity's control occur or fail to occur and that resolution will confirm the existence or non-existence of an asset. Disclosure of information about contingent assets is required when the occurrence of the confirming future event is likely. Section PS 3380 Contractual rights This new Section defines and establishes disclosure standards on contractual rights. Contractual rights are rights to economic resources arising from contracts or agreements that will result in both an asset and revenue in the future. Disclosure of information about contractual rights is required, including a description about their nature and extent and the timing. Section PS 3430 Restructuring transactions This new Section defines a restructuring transaction and establishes standards for recognizing and measuring assets and liabilities transferred in a restructuring transaction. A restructuring transaction is a transfer of an integrated set of assets and/or liabilities, together with related program or operating responsibilities without consideration based primarily on the fair value of the individual assets and individual liabilities transferred. The main requirements in the new Section are: The net effect of a restructuring transaction is recognized as revenue or an expense by the entities involved (transferor/recipient). The recipient must recognize the individual assets and liabilities received in a restructuring transaction at their carrying amounts with applicable adjustments at the restructuring date. The transferor and recipient cannot restate their financial position or results of operations as if the transaction had happened from inception. The transferor and recipient must disclose sufficient information to enable users to assess the nature and financial effects of a restructuring transaction on their financial position and operations. Effective date Fiscal years beginning on or after April 1, Earlier adoption is permitted. Fiscal years beginning on or after April 1, Earlier adoption is permitted. Fiscal years beginning on or after April 1, Earlier adoption is permitted. Fiscal years beginning on or after April 1, Earlier adoption is permitted. Management assessment of applicability Management will apply the new standard in the fiscal year ending December 31, 2017 Management will apply the new standard in the fiscal year ending December 31, 2017 Management will apply the new standard in the fiscal year ending December 31, 2017 Management is assessing the applicability Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

23 CES INFO-A Report to those charged with governance Initial communication on audit planning The District Municipality of Muskoka For the year ended December 31, Public Sector Accounting Board The issuance of this new Section also resulted in consequential amendments to Section PS 3050 Loans receivable Effective date Management assessment of applicability Proposed modifications to the accounting standards for not-for-profit organizations in the private and public sectors In April 2013, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB and collectively, the Boards) published a joint statement of principles (SOP) entitled Improvements to Not-for-Profit Standards. The changes proposed in the SOP would apply to private sector NFPOs that apply Part III of the CPA Handbook - ASNPO and public sector NFPOs that apply the CPA Canada Public Sector Accounting Handbook (PSA Handbook) including the Section 4200 to 4270 series of standards contained within the PSA Handbook. The consultation document issued by the Boards proposed improvements to better meet the needs of financial statement users and, where possible, to align accounting standards for private and public sector NFPOs. Comments on the SOP were due in December The Boards received an overwhelming 292 responses from interested parties of which 89% related to the proposals for private sector NFPOs. Over the last year, the Boards have been analyzing the responses and have discovered some common concerns with certain proposed principles, including: contributions and pledges o only recognizing contributions and pledges receivable when the NFPO has control over the contribution and can exercise its control; o recognizing contributions as revenue immediately unless the contribution gives rise to an obligation that meets definition of liability; controlled and related entities o consolidating all controlled NFPOs; o equity accounting for all controlled for-profit entities; financial statement presentation o presenting expenses by function in the statement of operations and disclosing expenses by object in the notes to the financial statements; and o presenting total fundraising and general expenses separately in the statement of operations (or disclosing the amounts in the notes). The Boards met in March 2015 to develop a process to address the SOP. They discussed key issues including: user needs, a need for symmetry between both private and public NFPOs and future timing of the project. In late June 2015, PSAB will consider a project plan to improve its standards for not-for-profit organizations. At this point in time, it is uncertain what direction PSAB will take as a result of the comments they have received on the SOP. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd

24 TO: FROM: Chair and Members Corporate and Emergency Services Committee Jeff Yeo Manager, Facilities Services DATE: February 18, 2016 SUBJECT: McVittie Place Tankless Hot Water Heater Repairs REPORT NO: CES RECOMMENDATION This report is provided for information. ORIGIN The McVittie Place building is an 80 unit seniors affordable housing apartment building located at 102 Pine Street which was constructed in Each apartment has a tankless hot water heater for heating and domestic uses. Tankless hot water heaters use a high efficiency heat exchanger to heat water on demand rather than maintaining stored water at a suitable supply temperature until required. Tankless hot water heaters use less energy and require less space because there is no stored water capacity. In order for the tankless hot water heaters to function efficiently, regular maintenance is necessary to clean and replace water filters used to prevent any undissolved solids in the water from collecting in the heat exchanger thereby reducing efficiency. Facilities building maintenance staff perform quarterly preventative maintenance service of the tankless hot water heaters as per the manufacturer s recommendations. While performing these inspections, staff began to notice minor scale deposits forming on the exterior of the heat exchanger housings on some of the heaters. This condition is an indication of premature failure of the heat exchanger and first appeared approximately a year ago on a few of the units and staff immediately notified the manufacturer. The heaters have a ten year manufacturer s warranty on the heat exchangers which provides a replacement unit in cases of manufacturer s defects on the heat exchanger. The manufacturer s warranty does not include the cost of labour to remove and replace the defective heater. ANALYSIS Since the first report, a total of 6 heaters have been replaced under warranty. Labour costs associated with these replacements have been charged to the McVittie Place operating budget. Page 1

25 A recent inspection, with the manufacturer present, resulted in 56 additional units being identified with the same condition and approved by the manufacturer for replacement. In consideration of the total number of units exhibiting the similar failure condition, the manufacturer has approved the warranty replacement of the remaining 18 heaters that are not currently exhibiting any signs of failure in anticipation that the similar failure will occur in the future. The manufacturer s replacement heaters have been re-designed and require additional labour to re-work the plumbing, venting and drainage in comparison to the original installation. Due to the number of replacements required and as a result of staff requests, the manufacturer has agreed to reconsider their position on coverage of the heater replacement labour cost, pending further review of the scope of work and associated cost. It is anticipated that the manufacturer will cover a portion of the replacement labour cost, however the amount of coverage has not been determined at the time of this report. The heaters, under average in-service conditions, should be expected to last between years. Staff are confirming with the manufacturer that the replacement heaters will have the same ten year warranty coverage on the heat exchangers as the existing heaters which provides a replacement unit in cases of manufacturer s defects. FINANCIAL CONSIDERATIONS The labour cost associated with the replacement of the six (6) water heater replacements that have occurred to date averaged $500 per water heater. Based on this costing, it is estimated that the labour cost associated with the replacement of the remaining 74 heaters plus a contingency for any extra materials and labour plus staff time to coordinate access to the units could cost up to $45,000 plus H.S.T. This figure could be lower depending on the results of further discussions with the manufacturer regarding any coverage of the replacement labour cost. The draft 2016 operating budget for the McVittie Place building does not include any minor capital repair projects or discretionary operating expenditures to defer. Staff will manage building operating expenditures throughout 2016 in an effort to reduce the overall impact. However, staff expect that there will be an unfavourable variance to budget as a result of this issue. Staff will provide updates in the quarterly variance reports and may recommend that this cost be financed from reserves, if the cost cannot be mitigated by reduced expenditures in other divisions across the organization. For information purposes, the estimated purchase cost of a replacement tankless hot water heater is $2,500 per unit. COMMUNICATIONS Staff will continue to coordinate and communicate with the tenants of the building regarding this work to minimize any disruption they may experience. Page 2

26 STRATEGIC PRIORITIES The information in this report supports the following Strategic Priorities: 2.8 (In part) Continue to implement integrated management reporting and work order systems in order to provide the necessary financial and activity based information for management to make sound decisions in a timely manner, to assist management in the effective deploy of required resources in the maintenance of District infrastructure. Respectfully submitted, Original signed by Jeff Yeo, A.Sc.T. Manager, Facilities Services Original signed by Julie Stevens, CPA, CA Commissioner of Finance and Corporate Services Page 3

27 TO: FROM: Chair and Members Corporate and Emergency Services Committee Chantelle Denstedt Director, IT Services DATE: February 18, 2016 SUBJECT: Information Technology Services Cost Comparison REPORT NO: CES RECOMMENDATION This report is provided for information. ORIGIN The Information Technology Steering Committee requested a business analysis on the benefits of remaining in a Shared Services partnership with the District s IT Services department. The business analysis is to include cost comparisons based on servers, staff and licensing for small (40) and medium (125) municipalities. BACKGROUND Shared IT Services Model Reviewed MGCG Limited In February 2008, The District Municipality of Muskoka retained an external consultant, MGCG Limited to conduct an operational review of Information Technology Services. At the time IT Services provided technology services to 8 different organizations: the six Area Municipalities, the Library Consortium and the District. The responsibilities for IT Services were not clearly defined and technology services were not uniformly provided. Service delivery was inconsistent and uneven with a cost recovery process from the Participating Municipalities which was also not understood or clearly defined and applied inconsistently. The primary issues identified in the report were: Need for clearly defined Service Delivery Standards; Lack of staffing resources and insufficient well trained staff; Need for an understandable cost allocation method; and Need for a Governance model. Page 1

28 Notwithstanding the issues identified, MGCG Limited concluded that the shared services model should be continued as the concept was sound and had the potential to provide quality, efficient and cost effective IT services for the District and the Area Municipalities. Since this report: The IT Services Steering Committee comprised of the Chief Administrative Officers from the Participating Municipalities was formed in 2009; A Memorandum of Understanding, including IT Service levels, core services and billable services and a clearly defined cost allocation method was executed between The District Municipality of Muskoka, the Town of Bracebridge, the Town of Gravenhurst and the Township of Muskoka Lakes in The Town of Huntsville and the Township of Georgian Bay did not enter into the Memorandum of Understanding. The Township of Lake of Bays withdrew from the Memorandum of Understanding in A Memorandum of Understanding was executed between the three Library Boards in Additional skilled IT Service positions (Network Administrator and Server Administrator) were created and filled Covenco Operational Review In 2011, the Town of Gravenhurst retained external consultant Covenco to conduct an operational review for the Town of Gravenhurst, including a review of the IT shared services model and the IT requirements for the Town. Covenco concluded that the development and consolidation of common technology standards, architecture and infrastructure, particularly when common applications are used by the Participating Municipalities, is the appropriate approach for that community Strategy Corp. Inc. In 2013, Strategy Corp. Inc. consulted with the District s IT Services staff, and representatives from the Participating Municipalities and Participating Libraries for the purpose of reviewing the District s Information Technology (IT) function which provides IT Services to three Area Municipalities and their respective libraries. Strategy Corp. Inc. observed that the level of satisfaction with IT Services has improved significantly, relative to a few years ago and recommended that the shared services model in the delivery of IT services be continued. R14/2014-CES, related to the Strategy Corp. Inc. report, was accepted by District Council on February 20, Page 2