Township of Southgate

Transcription

1 Page Special Council Agenda 1. Call to Order Township of Southgate Mayor Fosbrooke called the meeting to order at [TIME]. June 27, :30 AM 2. Confirmation of Agenda Be it resolved that Council confirm the agenda. 3. Presentation 2-50 BDO Canada LLP Audited Financial Statements Presentation Be it resolved that Council receive BDO Canada LLP Financial Statements presentation as information. 4. Reports of Municipal Officers Staff Report FIN Audited Financial Statements Be it resolved that Council receive Staff Report FIN Audited Financial Statements as information; and That Council approve the Township of Southgate s draft Financial Statements for the year ended December 31, 2017 as presented by BDO on June 27, Confirming By-law 53 Confirming By-law Adjournment Be it resolved that By-law , being a by-law to confirm the proceedings of the Council of the Corporation of the Township of Southgate at its special meeting held on June 27, 2018 be read a first, second and third time, finally passed, signed by the Mayor and the Clerk, sealed with the seal of the Corporation and entered into the by-law book. Be it resolved that Council adjourn the meeting at [TIME]. Page 1 of 53

2 Township of Southgate Report to Members of Council June 27, 2018 BDO Canada LLP Audited Financial Statements Presentation Page 2 of 53

3 Tel: Fax: BDO Canada LLP nd Avenue E, 3rd Floor PO Box 397 Owen Sound ON N4K 5P7 Canada June 27, 2018 Members of Council Township of Southgate RR# Grey Road 9 Dundalk, ON N0C 1B0 Dear Sir/Madam: We are pleased to present the results of our audit of the consolidated financial statements of the Township of Southgate for the year ended December 31, The purpose of our report is to summarize certain aspects of the audit that we believe to be of interest to Council and should be read in conjunction with the draft consolidated financial statements and our draft audit report which is included as Appendix A. Our audit, and therefore this report, will not necessarily identify all matters that may be of interest to the Council in fulfilling its responsibilities. This report has been prepared solely for the use of the Council and should not be distributed without our prior consent. Consequently, we accept no responsibility to a third party that uses this communication. We wish to express our appreciation for the co-operation we received during the audit from the Municipality s management and staff who have assisted us in carrying out our work. We look forward to meeting with you to discuss the contents of this report and any other matters that you consider appropriate. Yours truly, Traci Smith, CPA, CGA Partner BDO & Company LLP* *BDO & Company LLP provides accounting, assurance, tax and other professional advisory services to BDO Canada LLP, Chartered Professional Accountants, Licensed Public Accountants TS:sb BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO Canada LLP Audited Financial Statements Presentation Page 3 of 53

4 TABLE OF CONTENTS Executive Summary 4 Audit Findings 5 Internal Control Matters 8 Fraud Discussion 8 BDO Publications 9 Appendix A Draft Financial Report Appendix B Independence Update Appendix C Unadjusted Differences Appendix D Representation Letter 3 BDO Canada LLP Audited Financial Statements Presentation Page 4 of 53

5 EXECUTIVE SUMMARY Status of Audit As of the date of this report, we have substantially completed our audit of the 2017 financial statements pending the completion of the items highlighted below. These items will need to be completed prior to issuance of our final audit report on the financial statements: Approval of financial statements by Council Receipt of the signed management representation letter dated as of the final report date Subsequent events review through to financial statement approval date Purpose of the Audit Our audit of the financial statements was designed to obtain reasonable, rather than absolute, assurance as to whether the financial statements are free of material misstatement. The conclusion of our audit is set out in our draft auditor s report in Appendix A. A detailed description of our audit results has been included on page 5. Audit Risks Our overall audit strategy, including risks identified relating to the Township of Southgate and our planned procedures to address those risks, were outlined in our planning letter dated February 13, There were no changes to our planned audit procedures, and there were no additional procedures added to our audit plan. Independence At the core of the provision of external audit services is the concept of independence. Canadian generally accepted auditing standards require us to communicate to Council at least annually, all relationships between BDO Canada LLP and its related entities and the Township and its related entities, that, in our professional judgment, may reasonably be thought to bear on our independence with respect to the audit of the Township. Our annual letter confirming our independence is provided in Appendix B. We know of no circumstances that would cause us to amend our previous communication to you in our planning letter. Materiality Misstatements, including omitted financial statement disclosures, are considered to be material if they, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. For the audit of the Township of Southgate for the year ended December 31, 2017, final materiality was $180,000, based on 2% of average total revenues. 4 BDO Canada LLP Audited Financial Statements Presentation Page 5 of 53

6 AUDIT FINDINGS As part of our ongoing communications with you, we are required to have a discussion on our views about significant qualitative aspects of the Municipality's accounting practices, including accounting policies, accounting estimates and financial statement disclosures. A summary of the key discussion points are as follows: Significant financial statement disclosures Significant financial statement disclosures include: Accumulated Surplus A breakdown of the Township s accumulated surplus is included in Note 9. This includes the amount invested in capital assets, unfunded liabilities, reserves and reserve funds and also the general surplus (deficit) which is required to be carried forward to the next year s budget. Contingencies/Litigation Proceedings We have discussed with the municipality s management and they have indicated that there are no claims outstanding against the municipality. Commitments Significant commitments to health care organizations have been disclosed in Note 17. Significant accounting policies, estimates and judgments Management is responsible for determining the Township of Southgate s significant accounting policies. Significant accounting policies have been disclosed in the financial statements. The choice between accounting policy alternatives can have a significant effect on the financial position and results of the Township. The application of those policies often involves significant estimates and judgments by management. Based on the audit work that we have performed, it is our opinion that the estimates are in accordance with the requirements of Canadian public sector accounting policies and have been consistently applied. Significant estimates include: Solid waste landfill closure and post-closure liabilities Amounts have been estimated for closure and post-closure costs. The estimates were calculated based on correspondence with engineers and used the same approach to value the landfill liability as in the prior year. Post-employment benefits Amounts have been estimated for post-employment benefits. Management performed trend analysis of historical data and used the same approach to value the liability as in the prior year. 5 BDO Canada LLP Audited Financial Statements Presentation Page 6 of 53

7 Taxation revenue estimate Amounts have been estimated for taxable events that have occurred but have not yet been assessed. The estimate was based on trend analysis by year for supplemental taxation billings and write-offs for the last 3 years; examination of building permits issued in the last two years; and knowledge of potential reassessments. Liability for Contaminated Sites Management compiled a list of all properties owned by the Municipality or where the Municipality has accepted responsibility for the property and assessed whether each property was contaminated. Management is not aware of any contaminated sites therefore no liability has been accrued. Other Matters Building Permit Fees It is our understanding that information from the Joint Building Services Group (JBSG) was not provided to the Township of Southgate staff in a timely manner. Southgate s fees were also not cash flowed on a timely basis and as at December 31, 2017 the financial statements reflect a receivable of $898,821. This amount has subsequently been received from the JBSG. The Township of Southgate has exercised its right to withdraw from the JBSG as of July 1, 2018 and all building permit records maintained by the JBSG are to be returned to the Township of Southgate. We would recommend that Southgate staff reconcile the fees received to the building permit records once they have been returned to ensure the completeness of the information and fees provided by the JBSG. Properties in Tax Arrears During the course of our audit we noted that there are multiple properties in tax arrears that qualify to be registered for tax sale, contributing to the increase in tax arrears receivable. We encourage management to implement a process to ensure regular review of properties in arrears in order to pro-actively arrange payment plans or initiate tax sale proceedings in a timely manner. It is our understanding that staff are in the process of registering properties for tax sale. UNADJUSTED DIFFERENCES We have disclosed all significant unadjusted differences identified through the course of our audit engagement. Each of these items has been discussed with Management. Management has determined that the unadjusted differences of $12,000 are immaterial both individually and in aggregate to the consolidated financial statements taken as a whole. Should Council agree with this assessment, we do not propose further adjustments. For purposes of our discussion, a summary of unadjusted differences and disclosure omissions has been presented in Appendix C. 6 BDO Canada LLP Audited Financial Statements Presentation Page 7 of 53

8 MANAGEMENT REPRESENTATIONS During the course of our audit, management made certain representations to us. These representations were verbal or written and therefore explicit, or they were implied through the consolidated financial statements. Management provided representations in response to specific queries from us, as well as unsolicited representations. Such representations were part of the evidence gathered by us to be able to draw reasonable conclusions on which to base our audit opinion. These representations were documented by including in the audit working papers memoranda of discussions with management and written representations received from management. A copy of the management representation letter which summarizes the representations we have requested from management has been presented in Appendix D. 7 BDO Canada LLP Audited Financial Statements Presentation Page 8 of 53

9 INTERNAL CONTROL MATTERS During the course of our audit, we performed the following procedures with respect to the Municipality s internal control environment: Documented operating systems to assess the design and implementation of control activities that were relevant to the audit. Discussed and considered potential audit risks with management. Tested the operating effectiveness of controls in the payroll and purchases transaction streams. The results of these procedures were considered in determining, the extent and nature of substantive audit testing required. We are required to report to you in writing, significant deficiencies in internal control that we have identified during the audit. A significant deficiency is defined as a deficiency or combination of deficiencies in internal control that, in the auditor's professional judgment, is of sufficient importance to merit the attention of those charged with governance. During the course of our audit, we did not become aware of any significant weaknesses in the design or implementation of internal controls. Since an audit is not designed to detect all weaknesses in internal controls, there may be weaknesses which our procedures did not detect. A letter has been submitted to management with recommendations to improve the efficiency of the audit and other matters of interest to management. FRAUD DISCUSSION Canadian generally accepted auditing standards require us to discuss fraud risk with the Members of Council on an annual basis. As an update to the letter sent to the Members of Council during the planning of our audit, we have prepared the following comments: Required Discussion BDO Response Question to Council Knowledge of actual, suspected or alleged fraud. Currently, we are not aware of any actual, suspected or alleged fraud. If you are aware of any instances of actual, suspected or alleged fraud please contact us directly 8 BDO Canada LLP Audited Financial Statements Presentation Page 9 of 53

10 AUDITORS RESPONSIBILITIES FOR DETECTING FRAUD We are responsible for planning and performing the audit to obtain reasonable assurance that the consolidated financial statements are free of material misstatements, whether caused by error or fraud. The likelihood of not detecting a material misstatement resulting from fraud is higher than the likelihood of not detecting a material misstatement resulting from error, because fraud may involve collusion as well as sophisticated and carefully organized schedules designed to conceal it. The scope of the work performed was substantially the same as that described in our Planning Letter to Council dated February 13, BDO PUBLICATIONS The Municipality applies Canadian Public Sector Accounting Standards (PSAS). If the Municipality would like additional information about the accounting standards or about upcoming changes please see the website below and review the BDO publications available to our clients. Publications relevant for the Municipality would include the following: Public Sector Accounting Standards Update 2017 which provides you with details on recent changes to PSAB Standards. Public Sector at a Glance which provides you with details on PSAB Standards. Is Your Non-Profit Fraud-Proof? which provides you with simple ways to reduce your risk BDO Canada LLP Audited Financial Statements Presentation Page 10 of 53

11 APPENDIX A Draft Financial Report BDO Canada LLP Audited Financial Statements Presentation Page 11 of 53

12 The Corporation of the Township of Southgate Financial Statements For the year ended December 31, 2017 BDO Canada LLP Audited Financial Statements Presentation Page 12 of 53

13 The Corporation of the Township of Southgate Financial Statements For the year ended December 31, 2017 Contents The Corporation of the Township of Southgate Independent Auditor's Report 2-3 Consolidated Statement of Financial Position 4 Consolidated Statement of Operations and Accumulated Surplus 5 Consolidated Statement of Changes in Net Financial Assets 6 Consolidated Statement of Cash Flows 7 Summary of Significant Accounting Policies 8-11 Notes to Financial Statements Schedule of Deferred Revenue 28 BDO Canada LLP Audited Financial Statements Presentation Page 13 of 53

14 Independent Auditor's Report To the Members of Council, Inhabitants and Ratepayers of the Corporation of the Township of Southgate We have audited the accompanying consolidated financial statements of the Corporation of the Township of Southgate, which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statements of operations and accumulated surplus, changes in net financial assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Canada LLP Audited Financial Statements Presentation Page 14 of 53 2

15 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation of the Township of Southgate as at December 31, 2017 and the results of its operations, changes in net financial assets and cash flows for the year then ended in accordance with Canadian public sector accounting standards. Chartered Professional Accountants, Licensed Public Accountants Owen Sound, Ontario June 27, 2018 BDO Canada LLP Audited Financial Statements Presentation Page 15 of 53 3

16 The Corporation of the Township of Southgate Consolidated Statement of Financial Position December Financial assets Cash (Note 1) $ 1,910,598 $ 1,811,025 Temporary investments (Note 2) 1,396,535 1,413,423 Taxes receivable 2,318,130 1,800,763 Trade and other receivable 2,280,304 1,231,605 Long-term receivables (Note 3) 569, ,504 Long-term investments (Note 4) 117, ,476 8,592,462 7,000,796 Liabilities Accounts payable and accrued liabilities 1,124,986 1,148,539 Solid waste landfill closure and post-closure liabilities (Note 5) 380, ,000 Post-employment benefits (Note 6) 137, ,359 Deferred revenue (Page 28) 2,104,362 1,054,394 Long-term liabilities (Note 7) 2,136,497 2,403,863 5,883,254 5,098,155 Net financial assets 2,709,208 1,902,641 Non-financial assets Inventory of supplies 230, ,560 Prepaid expenses 133, ,172 Tangible capital assets (Note 8) 46,807,955 46,081,168 Accumulated surplus (Note 9) $49,881,078 $ 48,275,541 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. BDO Canada LLP Audited Financial Statements Presentation Page 16 of 53 4

17 The Corporation of the Township of Southgate Consolidated Statement of Operations and Accumulated Surplus For the year ended December Budget Actual Actual (Note 12) Revenue Taxation $ 5,734,994 $ 5,867,738 $ 5,429,556 Fees and user charges 1,287,653 1,529,841 1,418,412 Government transfers (Note 13) 1,843,341 1,795,286 2,782,380 Other income (Note 11) 1,725,626 1,202, ,407 10,591,614 10,395,191 10,430,755 Expenses General government 1,130,259 1,080,811 1,014,180 Protection services 1,948,431 1,897,433 1,874,270 Transportation services 3,171,492 3,101,263 2,921,840 Environmental services 1,522,487 1,587,283 1,494,715 Health services 35,586 40,212 32,249 Recreation and cultural services 736, , ,067 Planning and development 326, , ,407 8,871,205 8,789,654 8,353,728 Annual surplus (Note 12) 1,720,409 1,605,537 2,077,027 Accumulated surplus, beginning of the year 48,275,541 48,275,541 46,198,514 Accumulated surplus, end of the year $ 49,995,950 $49,881,078 $ 48,275,541 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. BDO Canada LLP Audited Financial Statements Presentation Page 17 of 53 5

18 The Corporation of the Township of Southgate Consolidated Statement of Changes in Net Financial Assets For the year ended December Budget Actual Actual (Note 12) Annual surplus (Page 5) $ 1,720,409 $ 1,605,537 $ 2,077,027 Acquisition of tangible capital assets (4,117,548) (2,468,529) (3,209,108) Amortization of tangible capital assets 1,761,000 1,741,742 1,683,883 Gain on sale of tangible capital assets - (23,354) (33,546) Proceeds on disposal of capital assets - 23,354 63,800 (2,356,548) (726,787) (1,494,971) Change in prepaid expenses - (16,050) (39,950) Change in inventories of supplies - (56,133) (29,271) (2,356,548) (798,970) (1,564,192) Increase (decrease) in net financial assets (636,139) 806, ,835 Net financial assets, beginning of the year 1,902,641 1,902,641 1,389,806 Net financial assets, end of the year $ 1,266,502 $ 2,709,208 $ 1,902,641 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. BDO Canada LLP Audited Financial Statements Presentation Page 18 of 53 6

19 The Corporation of the Township of Southgate Consolidated Statement of Cash Flows For the year ended December Cash provided by (used in) Operating activities Annual surplus (Page 5) $ 1,605,537 $ 2,077,027 Items not involving cash Change in landfill closure and post-closure liability 30,000 10,000 Equity in government business enterprises (13,605) (7,108) Change in post-employment benefits (3,950) 11,200 Amortization 1,741,742 1,683,883 Deferred revenue recognized (343,960) (1,033,396) Contributed capital assets (13,043) (13,043) Loss (gain) on sale of capital assets (23,354) (33,546) 2,979,367 2,695,017 Changes in non-cash working capital balances Taxes receivable (517,367) (275,563) Trade and other receivable (1,048,699) (438,640) Inventory of supplies (56,133) (29,271) Prepaid expenses (16,050) (39,950) Accounts payable and accrued liabilities (23,553) (184,776) Capital contribution - (100,925) Deferred revenue received 1,393, ,251 2,711,493 2,149,143 Capital transactions Cash used to acquire capital assets (2,455,486) (3,196,065) Proceeds on sale of capital assets 23,354 63,800 (2,432,132) (3,132,265) Investing activities Additions to long-term receivables (34,900) (34,900) Decrease in long-term receivables 105, ,334 70,690 75,434 Financing activities Proceeds from long-term liabilities 34,900 34,900 Repayment of long-term liabilities (302,266) (301,457) (267,366) (266,557) Net change in cash and cash equivalents 82,685 (1,174,245) Cash and cash equivalents, beginning of the year 3,224,448 4,398,693 Cash and cash equivalents, end of the year $ 3,307,133 $ 3,224,448 Cash and cash equivalents are comprised of: Cash $ 1,910,598 $ 1,811,025 Temporary investments 1,396,535 1,413,423 $ 3,307,133 $ 3,224,448 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. BDO Canada LLP Audited Financial Statements Presentation Page 19 of 53 7

20 The Corporation of the Township of Southgate Summary of Significant Accounting Policies December 31, 2017 Management Responsibility Basis of Accounting Management of the Corporation of the Township of Southgate has prepared and is responsible for the integrity, objectivity and accuracy of the financial information presented in these consolidated financial statements. The Council reviews and approves the consolidated financial statements. The consolidated financial statements of the Corporation of the Township of Southgate are the representations of management. They have been prepared by management in accordance with Canadian public sector accounting standards established by the Public Sector Accounting Board of the Chartered Professional Accountants of Canada as prescribed by the Ministry of Municipal Affairs and Housing. Revenues and expenses are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they become available and measurable; expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay. Basis of Consolidation The consolidated statements reflect the assets, liabilities, revenues and expenses of all municipal organizations, committees, and boards which are owned or controlled by Council. All interfund assets and liabilities, and revenues and expenses have been eliminated on consolidation. The following board is controlled by Council and has been consolidated: Township of Southgate Public Library Board 100% Government business enterprises and partnerships are separate legal entities which do not rely on the municipality for funding. Investments in government business enterprises are accounted for using the modified equity method. Under this method, the government business enterprise's accounting policies, which follow International Financial Reporting Standards, are not adjusted to conform with Public Sector Accounting Standards and inter-entity transactions and balances are not eliminated. The following government business enterprise is reflected in the consolidated financial statements: Wellington North Power Inc. 3.02% BDO Canada LLP Audited Financial Statements Presentation Page 20 of 53 8

21 The Corporation of the Township of Southgate Summary of Significant Accounting Policies December 31, 2017 Use of Estimates Revenue Recognition The preparation of financial statements in accordance with Canadian public sector accounting standards requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items such as accrued grant receivables, accrued liabilities, useful lives of capital assets, postemployment benefits, solid waste landfill closure and postclosure costs and taxation revenue. By their nature, these estimates are subject to measurement uncertainty and actual results could differ from management's best estimates as additional information becomes available in the future. Revenues are recognized as follows: a) Taxes are recorded as estimated amounts when they meet the definition of an asset, have been authorized and the taxable event occurs. For property taxes, the taxable event is the period for which the tax is levied. Taxes receivable are recognized net of an allowance for anticipated uncollectible amounts. b) Fines and donations are recognized when collected. c) Fees, user charges and other revenues are recorded upon sale of goods or provision of service when collection is reasonably assured. d) Investment income earned on surplus funds (other than obligatory reserve funds) are reported as revenue in the period earned. Investment income earned on obligatory reserve funds is recorded directly to each fund balance. e) Government transfers are recognized as revenue in the financial statements when the transfer is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recognized as deferred revenue when transfer stipulations give rise to a liability. Transfer revenue is recognized in the statement of operations as the stipulation liabilities are settled. Cash and Cash Equivalents Cash and cash equivalents include cash balances and shortterm highly liquid investments that are readily converted into cash. BDO Canada LLP Audited Financial Statements Presentation Page 21 of 53 9

22 The Corporation of the Township of Southgate Summary of Significant Accounting Policies December 31, 2017 Temporary Investments Solid Waste Landfill Closure and Post-Closure Costs Inventory Tangible Capital Assets Temporary investments are recorded at cost unless there has been a decline in the market value which is other than temporary in nature in which case the investments are written down to market. Site closure and post-closure care costs are recognized over the operating life of the landfills based on capacity used. The liability is recorded at its discounted value, based on the average long-term borrowing rate of the municipality. Inventory of supplies is recorded at the lower of cost or replacement cost. Tangible capital assets are recorded at cost less accumulated amortization. Costs include all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. Amortization is provided over the estimated useful life of the assets, using the straight-line method. The useful life of the assets is based on estimates made by Council. The following rates are used: Buildings Equipment Roads Bridges Water systems Sewer systems Other infrastructure 50 years 5 to 30 years 50 years 50 years 10 to 70 years 10 to 50 years 30 to 50 years Tangible capital assets received as contributions are recorded at fair value at the date of receipt and also are recorded as donation revenue. County and School Board The municipality collects taxation revenue on behalf of the school boards and the County of Grey. The taxation, other revenues, expenses, assets and liabilities with respect to the operations of the school boards and the County of Grey are not reflected in these financial statements. BDO Canada LLP Audited Financial Statements Presentation Page 22 of 53 10

23 The Corporation of the Township of Southgate Summary of Significant Accounting Policies December 31, 2017 Liability for Contaminated Sites A contaminated site is a site at which substances occur in concentrations that exceed the maximum acceptable amounts under an environmental standard. Sites that are currently in productive use are only considered a contaminated site if an unexpected event results in contamination. A liability for remediation of contaminated sites is recognized when the organization is directly responsible or accepts responsibility; it is expected that future economic benefits will be given up; and a reasonable estimate of the amount can be made. The liability includes all costs directly attributable to remediation activities including post remediation operations, maintenance and monitoring. The liability is recorded net of any expected recoveries. Management is not aware of any contaminated sites. Trust Funds Funds held in trust by the municipality, and their related operations, are not included in these financial statements. The financial activity and position of the trust funds are reported separately on the trust funds statement of continuity and balance sheet. BDO Canada LLP Audited Financial Statements Presentation Page 23 of 53 11

24 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Cash Unrestricted $ 1,071,235 $ 718,911 Restricted 839,363 1,092,114 $ 1,910,598 $ 1,811,025 On December 31, 2017, the municipality had deposits of $2,040,865 held in a Canadian Chartered bank and guaranteed investment certificates of $1,000,000 in a Credit Union. The Canadian Deposit Insurance Corporation insures deposits up to a maximum of $100,000 per depositor. The CIBC bank account earns interest at the average monthly CIBC Bank's prime rate less 1.8%. The Township of Southgate has undrawn credit facility of $1,000,000 for operating purposes. Interest is calculated at CIBC bank prime rate less 0.5%. 2. Temporary Investments One Fund - Public Sector Group of Funds $ 396,535 $ 413,423 Guaranteed Investment Certificate, nonredeemable, interest rate 1.7%, matures June ,000,000 1,000,000 $ 1,396,535 $ 1,413,423 Investments have a market value of $1,396,535 ( $1,397,137) at the end of the year. 3. Long-Term Receivables Local improvement loan, various rates and repayment amounts $ 118,720 $ 119,366 Tile drainage loans, 6%, various repayment amounts, due from 2018 to , ,138 $ 569,814 $ 640,504 BDO Canada LLP Audited Financial Statements Presentation Page 24 of 53 12

25 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Long-Term Investments Investment in Wellington North Power Inc. Investment in common shares (3.02%) $ 49,388 $ 49,388 Share of net income 67,693 54,088 $ 117,081 $ 103,476 The following summarizes the financial position and operations of the government business enterprise which has been reported in these financial statements using the modified equity method: Wellington North Power Inc. Wellington North Power Inc. is a corporation incorporated under the laws of the Province of Ontario and provides municipal electrical services. The Corporation of the Township of Southgate owns 3.02% of the outstanding shares of Wellington North Power Inc. The condensed supplementary financial information is as follows: Assets $13,311,267 $ 12,134,152 Liabilities $ 8,865,399 $ 7,852,340 Shareholders' equity 3,737,149 3,313,485 Regulatory balances 708, ,327 $13,311,267 $ 12,134,152 Revenues $ 16,923,431 $ 15,679,033 Expenses 16,499,767 15,434,159 Net income for the year $ 423,664 $ 244,874 The condensed supplementary financial information included above is based on the last available audited statements for the year ended December 31, BDO Canada LLP Audited Financial Statements Presentation Page 25 of 53 13

26 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Solid Waste Landfill Closure and Post-Closure Liabilities Solid waste landfill closure and post-closure care requirements have been defined in accordance with industry standards and include final covering and landscaping of the landfill, removal of ground water and leachates, and ongoing environmental monitoring, site inspection and maintenance. The liability for the three landfill sites in the Township is recorded at $380,000 and represents the present value of closure and post-closure costs for Egremont's opened cells and the two closed landfill sites at Proton and Dundalk, using the municipality's long-term borrowing rate of 3%. The liability is recorded based on the capacity of the landfill used to date. The total estimated future expenses for closure and post-closure care are $453,300 leaving an amount to be recognized of $73,300. There are unopened cells at Egremont, for which no liability has been accrued. The estimated remaining capacity of the total Egremont site is approximately 288,461 cubic metres, which will be filled in an estimated 73 years. Post-closure care is estimated to continue for a period of 20 years after the close of the cell. There is no remaining capacity at Dundalk and Proton and the post-closure care is estimated to continue for 6 years and 12 years, respectively. The liability is currently partially funded in the amount of $122,779 through reserves. The additional liability is expected to be funded through budget allocations to the landfill reserve over the remaining life of the landfill. 6. Post-Employment Benefit Accrued benefit liability, beginning of the year $ 141,359 $ 130,159 Benefits earned 3,250 14,600 Benefits paid (7,200) (3,400) Accrued benefit liability, end of the year $ 137,409 $ 141,359 The Township has approved a retirement allowance of $200 per year for each year of service for all employees, volunteer firefighters, and council members that have been with the Township for 5 years. The Township recognizes the post-employment costs in the year the benefit is earned. BDO Canada LLP Audited Financial Statements Presentation Page 26 of 53 14

27 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Long-Term Liabilities The balance of long-term liabilities reported on the consolidated statement of financial position is made up of the following: Tile drain loans payable, 6%, due from 2018 to 2027 $ 451,094 $ 521,138 Demand instalment loan payable, (Egremont Landfill Site), CIBC, 2.5% interest, repayable in blended monthly payments of $14,253, last scheduled payment March 1, ,275,403 1,412,725 Mortgage payable, annual mortgage repayments of $60,000, interest at 3%, repayable monthly, last scheduled payment April 2, 2018, secured by real property 410, ,000 $ 2,136,497 $ 2,403,863 The gross interest paid relating on the above long-term debt was $77,739 and the gross interest expensed during the year was $77,453. In the absence of demand for repayment, expected principal payments for the next five fiscal years and thereafter are as follows: 2018 $ 641, , , , ,970 Thereafter 639,091 $ 2,136,497 BDO Canada LLP Audited Financial Statements Presentation Page 27 of 53 15

28 BDO Canada LLP Audited Financial Statements Presentation Page 28 of Tangible Capital Assets Cost, beginning of the year Additions Disposals Cost, end of the year Accumulated amortization, beginning of the year Amortization Disposals Accumulated amortization, end of the year Net carrying amount, end of the year Land Buildings Equipment Roads Bridges The Corporation of the Township of Southgate Notes to Financial Statements Water System 2017 Sewer System Other Total $ 3,469,452 $ 4,258,537 $ 9,008,484 $ 31,831,986 $ 13,367,701 $ 5,065,677 $ 4,716,647 $ 1,174,301 $ 72,892,785-44, , , , ,495 11, ,475 2,468, (454,316) (454,316) 3,469,452 4,302,928 9,423,555 32,752,318 13,711,813 5,236,172 4,727,984 1,282,776 74,906,998-1,587,999 5,429,588 10,430,849 5,300,696 1,641,081 1,825, ,555 26,811,617-84, , , ,930 82, ,155 26,890 1,741, (454,316) (454,316) - 1,672,973 5,506,376 11,057,223 5,554,626 1,723,396 1,962, ,445 28,099,043 $ 3,469,452 $ 2,629,955 $ 3,917,179 $ 21,695,095 $ 8,157,187 $ 3,512,776 $ 2,765,980 $ 660,331 $ 46,807,955 16

29 BDO Canada LLP Audited Financial Statements Presentation Page 29 of Tangible Capital Assets - (continued) Cost, beginning of the year Additions Disposals Cost, end of the year Accumulated amortization, beginning of the year Amortization Disposals Accumulated amortization, end of the year Net carrying amount, end of the year Land Buildings Equipment Roads Bridges The Corporation of the Township of Southgate Notes to Financial Statements Water Systems 2016 Sewer Systems Other Total $ 3,469,452 $ 4,237,077 $ 8,575,288 $ 31,399,636 $ 12,094,642 $ 4,792,125 $ 4,562,282 $ 1,109,312 $ 70,239,814-21, , ,350 1,461, , ,365 64,989 3,209, (345,244) - (188,248) (22,645) - - (556,137) 3,469,452 4,258,537 9,008,484 31,831,986 13,367,701 5,065,677 4,716,647 1,174,301 72,892,785-1,503,052 5,257,797 9,814,178 5,234,398 1,516,521 1,757, ,146 25,653,617-84, , , , ,196 68,324 25,409 1,683, (345,244) - (158,003) (22,636) - - (525,883) - 1,587,999 5,429,588 10,430,849 5,300,696 1,641,081 1,825, ,555 26,811,617 $ 3,469,452 $ 2,670,538 $ 3,578,896 $ 21,401,137 $ 8,067,005 $ 3,424,596 $ 2,890,798 $ 578,746 $ 46,081,168 17

30 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Tangible Capital Assets - (continued) The net book value of tangible capital assets not being amortized because they are under construction (or development) is $372,230 ( $26,017). During the year $15,251 ( $13,043) in contributed tangible capital assets were recognized in the financial statements. The municipality has recorded land acquired before 1950 at nominal amounts. 9. Accumulated Surplus Accumulated surplus consists of individual fund surpluses and reserves as follows: Invested in tangible capital assets Tangible capital assets at cost less amortization $46,807,955 $ 46,081,168 Unfinanced capital (346,525) - Capital assets financed by long-term liabilities and to be funded in future years (1,685,403) (1,882,725) Total invested in capital assets 44,776,027 44,198,443 Unfunded post-employment benefits (137,409) (141,359) Unfunded solid waste landfill closure and post-closure costs (380,000) (350,000) Equity in Wellington North Power 117, ,476 44,375,699 43,810,560 Reserves and reserve funds (Note 10) 5,505,379 4,464,981 Accumulated surplus $49,881,078 $ 48,275,541 BDO Canada LLP Audited Financial Statements Presentation Page 30 of 53 18

31 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Reserves and Reserve Funds Set Aside for Specific Purpose by Council Reserves Working funds $ 422,541 $ 422,541 Current purposes 842, ,200 Capital purposes 3,861,547 3,333,960 5,127,025 4,085,701 Reserve funds Capital purposes 378, ,280 Reserves and reserve funds set aside for specific purpose by Council $ 5,505,379 $ 4,464, Other Income Budget Actual Actual Penalties and interest on taxation $ 190,000 $ 240,178 $ 210,921 Other fines and penalties 500 1,605 1,210 Investment income 35,040 23,478 43,708 Licenses, permits and rents 328, , ,136 Donations 1,550 6,442 3,469 Donation of contributed assets - 15,251 13,043 Sale of land, equipment, publications, etc. 1,100, ,359 1,193 Gain on disposal of capital assets 15,000 23,354 33,546 Government business enterprises - 13,605 7,108 Special charges - 19,361 57,738 Contributions from developement fees 16,900 85,407 24,299 Other 37,500 34,911 8,036 $ 1,725,626 $ 1,202,326 $ 800,407 BDO Canada LLP Audited Financial Statements Presentation Page 31 of 53 19

32 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Budgets Under Canadian public sector accounting principles, budget amounts are to be reported on the consolidated statements of operations and accumulated surplus and changes in net financial assets for comparative purposes. The 2017 budget amounts for the Corporation of the Township of Southgate approved by Council have been reclassified to conform to the presentation of the consolidated statements of operations and accumulated surplus and changes in net financial assets. The following is a reconciliation of the budget approved by Council Budget Actual Actual Annual surplus (Page 5) $ 1,720,409 $ 1,605,537 $ 2,077,027 Amortization 1,761,000 1,741,742 1,683,883 Change in unfunded liabilities 10,000 26,050 21,200 Change in unfunded contribution - - (100,925) Change in other surpluses - (13,605) (7,108) 3,491,409 3,359,724 3,674,077 Net transfers to reserves (725,814) (1,040,398) (282,265) Capital acquisitions, disposals and write-down (3,944,530) (2,468,529) (3,178,854) Capital projects not funded - 346,525 - Proceeds from long-term debt 1,389, Debt principal repayments (210,109) (197,322) (191,769) ,189 Prior year general surplus (deficit) - - (21,189) General surplus (Note 9) $ - $ - $ - BDO Canada LLP Audited Financial Statements Presentation Page 32 of 53 20

33 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Government Transfers Budget Actual Actual Operating Province of Ontario Ontario Municipal Partnership Fund (OMPF) $ 785,900 $ 785,900 $ 821,600 Conditional - Roads 24,500 30,828 22,314 - Other 147, , , , ,093 1,008,068 Other municipalities - Other 120, , ,622 Total operating transfers 1,073,589 1,045,902 1,130,690 Tangible capital asset Province of Ontario Conditional - Roads 432, ,644 1,362,068 - Sewer and water - 6, Other 47,900 27,500 7, , ,144 1,370,038 Government of Canada Federal Gas Tax $ 250,000 $ 250,000 $ 268,225 Conditional - Roads - 27, Other 39,438 28,551 13,427 Total tangible capital asset transfers 769, ,384 1,651,690 Total transfers $ 1,843,341 $ 1,795,286 $ 2,782,380 BDO Canada LLP Audited Financial Statements Presentation Page 33 of 53 21

34 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Pension Agreements The municipality makes contributions to the Ontario Municipal Employees Retirement Fund (OMERS), which is a multi-employer plan, on behalf of 31 members of its staff. This plan is a defined benefit plan which specifies the amount of the retirement to be received by the employees based on the length of service and rates of pay. Employees and employers contribute jointly to the plan. The employer amount contributed to OMERS for 2017 by the Township of Southgate was $158,841 ( $151,500).The contribution rate for 2017 was 9.0% to 15.8% depending on age and income level ( % to 15.8%). OMERS is a multi-employer plan, therefore, any pension plan surpluses or deficits are a joint responsibility of Ontario municipal organizations and their employees. As a result, the municipality does not recognize any share of the OMERS pension surplus or deficit. The last available report for the OMERS plan was December 31, At that time the plan reported a $5.4 billion actuarial deficit ( $7.72 billion actuarial deficit), based on actuarial liabilities of $93.61 billion ( $86.96 billion) and actuarial assets of $88.21 billion ( $81.24 billion). Ongoing adequacy of the current contribution rates will need to be monitored as fluctuations in the financial markets may lead to increased future funding requirements. 15. Operations of School Boards and the County of Grey During the year, the following taxation revenue was raised and remitted to the school boards and the County of Grey: School boards $ 1,832,820 $ 1,624,074 County of Grey 2,982,115 2,673,605 $ 4,814,935 $ 4,297,679 BDO Canada LLP Audited Financial Statements Presentation Page 34 of 53 22

35 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Trust Funds The trust funds administered by the municipality amounting to $240,819 ( $241,172) have not been included in the consolidated statement of financial position nor have the operations been included in the consolidated statement of operations and accumulated surplus. At December 31, 2017, the trust fund balances are as follows: Cemetery Care and Maintenance funds $ 239,813 $ 237,666 Egremont Optimist Club (2,985) (434) Other 3,991 3,940 $ 240,819 $ 241, Commitments i) The Township has committed $400,000 for the Markdale Hospital project should the project commence. The Township has transferred $380,000 to a reserve. ii) The Township has committed $200,000 for the Mount Forest Louise Marshall Hospital Foundation for the expansion of the hospital's emergency department and ambulatory care area. The Township has transferred $80,000 to a reserve and will authorize the transfer of funds when the project commences. 18. Comparative Amounts Prior year comparative amounts have been reclassified to conform to the current year financial statement presentation. BDO Canada LLP Audited Financial Statements Presentation Page 35 of 53 23

36 The Corporation of the Township of Southgate Notes to Financial Statements December 31, Segmented Information The Township of Southgate is a diversified municipal government institution that provides a wide range of services to its citizens such as police, fire, sewer, water, waste collection, disposal and recycling, recreational, library and planning. 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 related to the revenues and expenses that relate to the governance and operations of the municipality itself and cannot be directly attributed to a specific segment. Protection to Persons and Property Protection is comprised of police services, fire protection, conservation authority, emergency measures, canine control and building and structural inspection. The police services work to ensure the safety and protection of the citizens and their property. The fire department is responsible to provide fire suppression service, fire prevention programs, training and education. The members of the fire department consist of volunteers. The building department provides a number of services including maintenance and enforcement of building and construction codes and review of all property development plans through its application process. Transportation Transportation is responsible for construction and maintenance of the municipality's roadways, bridges, parking areas and streetlighting. Environmental Environmental services consists of providing waste collection, disposal and recycling to the municipality's citizens. It also consists of providing the municipality's drinking water and processing and cleaning sewage. The municipality ensures water and sewage systems meet all Provincial standards. Health Health services include contributions to the operations of local cemeteries. Recreational and Cultural Services This service area provides services meant to improve the health and development of the municipality's citizens. The municipality operates and maintains parks and arenas. The municipality also provides library services and recreational programs. BDO Canada LLP Audited Financial Statements Presentation Page 36 of 53 24