Tuesday, May 22, 2018 - Brampton Com… · Update to KPMG recommendations 3 # KPMG recommendation Management update 1 The Policy should contain enough detail to ensure that the Member

Tuesday, May 22, 2018

10:00 a.m. – Regular Meeting

Alderlea – 40 Elizabeth Street South (Note change to start time and meeting location)

Members: Regional Councillor M. Palleschi – Wards 2 and 6 (Chair) Regional Councillor M. Medeiros – Wards 3 and 4 Regional Councillor E. Moore – Wards 1 and 5

Regional Councillor G. Miles – Wards 7 and 8 City Councillor G. Dhillon – Wards 9 and 10

For inquiries about this agenda, or to make arrangements for accessibility accommodations for persons attending (some advance notice may be required), please contact:

Sonya Pacheco, Legislative Coordinator Telephone (905) 874-2178, TTY (905) 874-2130, [email protected]

Note: Some meeting information may also be available in alternate formats, upon request

Agenda

Audit Committee Committee of the Council of

The Corporation of the City of Brampton

mailto:[email protected]

Agenda Audit Committee

2018 05 22 Page 2 of 3

Please ensure all cell phones, personal digital assistants (PDAs) and other electronic devices are turned off or placed on non-audible mode during the meeting.

1. Approval of Agenda

2. Declaration of Interest under the Municipal Conflict of Interest Act

3. Consent * The following items listed with an asterisk (*) are considered to be routine

and non-controversial by the Committee and will be approved at this time. There will be no separate discussion of any of these items unless a Committee Member requests it, in which case the item will not be consented to and will be considered in the normal sequence of the agenda.

(nil)

4. Delegations/Presentations

4.1. Delegation from Mr. Kevin Travers, Partner, KPMG LLP Chartered Accountants, re: KPMG Audit Findings Report (year ended December 31, 2017). (See Item 6.1)

4.2. Presentation by Z. Majid, Senior Manager, Accounting and Deputy Treasurer, Corporate Services, re: KPMG Audit Findings – Mayor and Councillors’ Expenses Management Update.

5. Reports – Internal Audit

5.1. Report from F. Velji, Chief Audit Executive, Office of Internal Audit, dated April 30, 2018, re: Status of Management Action Plans – March 31, 2018. To be received

5.2. Report from F. Velji, Chief Audit Executive, Office of Internal Audit, dated April 26, 2018, re: Road Resurfacing Audit Report.

Agenda Audit Committee

2018 05 22 Page 3 of 3

6. Reports – Finance

6.1. Report from D. Sutton, Treasurer, Corporate Services, dated May 11, 2018, re: 2017 Audited Consolidated Financial Statements for the City of Brampton. (See Item 4.1) To be received

7. Other/New Business

8. Councillor Question Period

9. Public Question Period 15 Minute Limit – (regarding any item discussed as part of this agenda)

10. Closed Session

Note: A separate package regarding this agenda item is distributed to Members of Council and senior staff only.

10.1 Advice that is subject to solicitor-client privilege, including communications

necessary for that purpose and litigation or potential litigation, including matters before administrative tribunals, affecting the municipality or local board

11. Adjournment Next Regular Meeting: Tuesday, June 26, 2018

(meeting location will be Boardroom WT 2C/2D – West Tower due to scheduled Council Chamber renovations)

KPMG Audit Findings: Mayor and Councillors’ Expenses Management Update

Audit Committee Meeting

May 22, 2018

4.2-1

Background

KPMG conducted a ‘specified procedures audit’ over Mayor and Councillors’ expenses claimed in 2016 Presented to Audit Committee in September 2017

Mayor and Councillor Expense Policy (the “Policy”) was updated for: Key recommendations from the KPMG audit; Benchmarking exercise with other municipalities; and Feedback from Mayor and Councillors

Revised Mayor and Councillor Expense Policy was approved by Council on February 21, 2018

Policy will take effect with new term of Council (December 1, 2018)

2

4.2-2

Update to KPMG recommendations

3

# KPMG recommendation Management update

1 The Policy should contain enough detail to ensure that the Member of Council is receiving sufficient guidance on what is an allowable expense.

Updated Policy satisfies mandate of providing sufficient guidance on what constitutes appropriate expenses for elected officials while at the same time providing enough flexibility to efficiently conduct business on behalf of the constituents.

2 A mandated periodic review of the City policies, especially the Mayor and Councillors' Expense Policy, and Standard Operating Procedures should be implemented.

Revised Mayor and Councillor Expense Policy was recently approved by Council and will take effect with new term of Council. In addition, under new Corporate policy framework approved by Council on October 11, 2017, there are clear guidelines regarding the periodic review of City policies.

4.2-3

Update to KPMG recommendations (cont’d)

4


3 The Policy should be enhanced to specify all eligible expenses. In addition, the three policies should only be directed towards the Mayor and Councillors.

As part of the Policy update, policies were combined into one comprehensive Policy only applicable for Members of Council. In addition, under new Corporate policy framework, there are clear guidelines regarding what constitutes Council Policy versus Administrative Directive for staff.

4 The City should consider holding a training session as part of the Mayor's and Councillors' orientation sessions, where they review the Policy in detail.

Updated Policy will be incorporated into Council Handbook being developed by the City Clerk for 2018-2022 term of Council, and will be specifically addressed in new Council orientation and formalized training sessions.

4.2-4


5


5 • Submit expenses at least every two months and City should consider making this a requirement on the Mayor and Councillors' Expense Policy.

• Documentation for reimbursement should: (i) be more descriptive, (ii) be consistent, and (iii) provide sufficient back-up to support the eligibility of an expense.

Updated Policy addresses all the items outlined in this recommendation such as timely submission of expenses (60 days) as well as provision of descriptive and consistent back-up documentation.

4.2-5


6


6 Update the relevant expense policies to address Council Member/Mayor usage of a staff member's P-card.

Updated Policy includes guidelines for usage of P-cards.

7 The Policy should have guidelines on what is eligible when giving a gift to an individual.

Updated Policy includes guidelines related to nominal gifts for less than $100 for special business related occasions such as retirements and in-memoriam gifts. On March 28, 2018, Committee of Council also approved Standard Operating Procedures for Dignitary gifts for Members of Council and staff. This provides guidelines related to gifts to other elected officials and local/foreign dignitaries acting in an official capacity.

4.2-6

Report

Audit Committee The Corporation of the City of Brampton

2018-05-22

Date: April 30, 2018

Subject: Status of Management Action Plans-March 31, 2018

Contact: Foruzan Velji, Director, Office of Internal Audit, 905-874-2155,

[email protected]

Recommendations:

1. That the report from Foruzan Velji, Director, Office of Internal Audit, dated April

30, 2018 to the Audit Committee Meeting of May 22, 2018, re: Status of Management Action Plans – March 31, 2018 be received.

Overview:

As part of the internal audit follow-up process, departments are required to

provide the Office of Internal Audit with an update on the Management Action Plan status and progress of outstanding audit recommendations;

The objective of this report is for the Office of Internal Audit to inform Audit Committee members on the progress of the implementation of

recommendations, as reported by management;

The comments reflect the status of the implementation of recommendations

due to be completed by or prior to March 31, 2018;

Since the previous update (February 20, 2018), 31 audit recommendations remain to be implemented by Management. As of March 31, 2018, 10 have

been implemented, 5 have been deferred, and 16 will be implemented between June 2018 and June 2019.

The Office of Internal Audit may validate results at a subsequent date as part of the follow-up audit process;

Details concerning the individual recommendations are available upon

request.

5.1-1

Background:

In accordance with the requirements of Standard 2500.A1 of the International Standards for the Professional Practice of Internal Auditing, the Office of Internal Audit has

established a follow-up process to monitor and ensure that management action plans for audit recommendations have been implemented. This process has been in place since 2006.

For the follow-up process, departments are required to provide an update to the Office

of Internal Audit on the progress of implementing agreed-upon audit recommendations. The Office of Internal Audit reviews the comments submitted by the department, and where necessary, the Director of Internal Audit will meet with Management to discuss

the respective progress and comments. Upon complete implementation of the audit recommendations by Management, Internal Audit will assess whether a follow-up audit

is necessary to validate that the implemented processes and procedures are operating effectively. Such follow-up audits are included in Internal Audit’s annual work plan, which is approved by the Audit Committee.

The implementation status updates from Management are reported to the Audit

Committee. This report summarizes the statuses of audit recommendations due to be implemented by Management on or prior to March 31, 2018.

Current Situation:

As of March 31, 2018, there were 15 audit recommendations that were due to be

implemented by Management on or prior to this date. Of the recommendations, 10 were reported by Management as completed, and the remaining were in-progress of

implementation. Please refer to Appendix 1 for details of the following:

Table 1: Summary of Recommendations as of March 31, 2018

Table 2: Summary of Deferred Items with Revised Implementation Dates Graph 1: Details of Deferred Items Corporate Implications:

Financial Implications:

None Other Implications:

None

5.1-2

Strategic Plan:

This report achieves the Strategic Plan priority of Good Government through the establishment of an internal audit follow up procedure for the implementation of audit

recommendations, which promotes corporate accountability, values and governance best practice. Conclusion:

The Office of Internal Audit is committed to continuously collaborating with management

in identifying, reviewing, improving, and updating policies, procedures, and processes on a regular basis, and enhancing efficiencies and process effectiveness.

The Office of Internal Audit encourages management and staff to continue striving to meet the target completion dates of audit recommendations.

Approved by:

________________________ Foruzan Velji

Director, Office of Internal Audit

Attachments: Appendix 1

Report authored by: Sabrina Cook, MA Administrative Services Coordinator, Office of Internal Audit

5.1-3

Appendix I

Table 1: Summary of Recommendations as of March 31, 2018

YTD

Completed

As of March 31, 2018

Audit Report Rating Year Total # Recs Completed Deferred Not Yet

Due

Transit: PRESTO Revenue N/A 2016 7 5 - - 2

Property Tax Revenue 2017 5 4 - 1 -

Human Resources Salary Administration 2017 13 11 1 - 1

Cash Handling and Revenue (Cassie Campbell Community Centre)

2017 8 5 - - 3

Employee Expense Reimbursement 2017 6 2 2 - 2

Library Operations 2017 4 - - 3 1

Building Permits 2017 3 1 - 1 1

KPMG: Mayor and Councillor Expenses N/A 2017 7 - 7 - -

KPMG: Review of Logical Access Management

N/A 2018 6 - - - 6

Total Count 59 28 10 5 16

% of total due at March 31 2018 67% 33%

5.1-4

Appendix I

Table 2: Summary of Deferred items with Revised Implementation Dates

Audit Report Name # of Overdue

Recommendations Original Due

Date Revised Due Date

Property Tax Revenue 1 October 2017 December 2018

Building Permits 1 March 2018 June 2018

Library Operations 3 March 2018 June 2018

Total In-Progress 5

Graph 1: Details of Deferred Items

1 1

3

0

0.5

1

1.5

2

2.5

3

3.5

Property Tax Revenue Building Permits Library Operations

Priority Ratings of Deferred Recommendations

P1 P2 P3

5.1-5

Report

Audit Committee The Corporation of the City of Brampton

May 22, 2018

Date: April 26, 2018

Subject: Road Resurfacing Audit Report

Contact: Foruzan Velji, Director, Office of Internal Audit, (905-874-2155)

[email protected]

Executive Summary:

The 2017 Internal Audit work plan included an audit of the City’s Road Resurfacing Program. The Road Resurfacing Program supports the City’s infrastructure by ensuring that roads remain in a “state of good repair”. The Public Works and Engineering Department (Public Works) measures road quality by Overall Condition Index (OCI) and has a target OCI for all of the City’s roads. Management estimates that 78% of Brampton roads are in good condition due to the robust resurfacing and maintenance program. Given that the Road Resurfacing program has not been audited and management requested an examination of the 2013 Road Resurfacing Contract, this program was identified for review.

Overall Results: Based on our audit work and management’s approach to proactively addressing our

findings, enhancement is required to increase the oversight in the Road Resurfacing Program activities. Specifically, the following areas for improvement were identified

(refer to Appendix B for the audit findings evaluation criteria and to page 4 for an overview of the Road Resurfacing Process):

Process Finding Audit Rating

Planning and Awarding Bid

Lack of a centralized database to capture all bid and contract information and no process for post evaluation review and analysis highlights the need

for management to review and improve the bidding processes.

Contract

Administration

The contract administration process will be

strengthened by : formalizing a site inspection plan to ensure adequate coverage, completing staff training on site measurements to ensure

consistency of measurements, completing all trial batch material testing and specifying

documentation requirements in the daily inspection reports.

Enhancement Required

P2

P2

5.2-1

Contract Administration

There is inconsistency between current practices and the Contract administration procedures and local Road Resurfacing Contract. Both the contract

and the procedures need to be reviewed and updated to ensure they are relevant and that they

are reflective of the current Road Resurfacing program.

Payment Processing

There is a reliance on many manual procedures

related to the payment process. Assessing the feasibility of automating these procedures could result in increased efficiencies.

Customer

Service

The Notice of Construction can be updated to

provide more detail to the residents affected. Perform post evaluation review of the customer

complaint database to gain further insights on volume and nature of complaints, perform trend analysis and identify any root causes that may

warrant further actions.

Background:

The City of Brampton maintains about 2700 lane kilometers of arterial, collector, and local roads. The 2016 capital expenditure for resurfacing roads was budgeted at approximately

$11.06 million. The road resurfacing projects are governed by Ontario Provincial Standards for Roads and Public Works as well as Brampton Standard Specifications.

Each year, as part of the Road Resurfacing program, a number of streets are resurfaced. Based on road classification, a certain depth of asphalt is scraped from

the road surface and a new layer of asphalt is put down. This can only be done on streets that have not deteriorated past the point of resurfacing. Road surfaces that

cannot be resurfaced must undergo more extensive rehabilitation. The City determines the overall pavement conditions (or OCI) based on a

combination of several factors such as the age of the road, actual pavement condition assessment, unique use of the road, history of pavement upgrades and

experiential judgement. The City undertakes a pavement condition assessment on all of its roads

approximately every four years and analyzes the results through a pavement management system in order to determine pavement condition. The pavement

management system identifies when roads should be resurfaced or reconstructed based upon specified values which are set in order to maintain an overall road network average condition rating.

P3

P3

P2

5.2-2

Public Works’ mandate is to maintain the overall pavement conditions, or OCI, for all roads at 7.0 across the City’s road network as approved by Council.

A list of streets for resurfacing is submitted each year to Council, who approve the budget for the listing provided.

The Capital Works group of the Public Works and Engineering Department is responsible for the reconstruction and rehabilitation of roadways including related

sewer repair, replacement of damaged curb and sidewalk repair. They also coordinate work with Brampton Transit and the Region of Peel by installing new

transit pads and watermain looping. Although the Road Resurfacing division is a part of the City’s Road Operations, it

operates independently under a separate Council approved budget under Capital Works. The Road Resurfacing group has traditionally been part of Road Operations

however, in 2016, this group transferred to Capital Works after the tender was awarded.

Audit Scope and Objectives:

This audit commenced in June 2017 and audit fieldwork was substantially complete

by November 2017. The objectives of this audit were to determine whether:

Contracts were properly approved, reviewed, and competitively awarded in

accordance to applicable laws, rules and regulations.

Contract activities were properly monitored by appropriate City staff to ensure

the required work was performed in accordance with contract stipulations and conditions;

Payments to contractors were proper, correct, supported, authorized, and in

accordance with contract terms and conditions and;

Overall internal controls provided sufficient oversight over the road resurfacing

program activities.

The scope of the audit focused primarily on evaluating the Road Resurfacing

Contract and contract administration activities that were executed and implemented during the period January 1, 2016 to December 31, 2016.

During the course of this audit several site visits were performed to:

Review the existence of labour, materials, and equipment Identify presence of the City’s inspector on site

Assess the safety measures & signage Review pre-engineering markings for repair Verify material tickets when asphalt/concrete is offloaded from the truck

5.2-3

The following areas were not included in the scope of this audit:

Planning the Road Resurfacing Projects; and

Compliance to Purchasing policies and procedures.

Scope Limitation

Our Engagement Letter included specified procedures on the 2013 Road

Resurfacing contract. Due to the lack of evidence provided on this matter, we were not able to perform the specified procedures on the 2013 contract.

5.2-4

For the purposes of this report, the Road Resurfacing Process has been summarized into the following 4 stages:

1

Planning & Awarding

Bids

*The Infrastructure

Planning group prepares

the preliminary road

rehabilitation list.

Road resurfacing

Inspectors perform pre-

engineering surveys to

define the scope of work

on each street.

*Based on the scope of

work, the budget

allocation summary is

prepared for each street,

and the final list is shared

with Council for approval.

strategy

*The Purchasing

Department evaluates the

bid and consults the

Capital Construction

Group for

recommendations.

*The Purchasing

Department awards the

bid to a contractor.

Contract

Administration

2

*Site Inspections &

measurements are

performed by

Inspectors in real

time while the work is

being completed by

the Contractor.

*Bi-weekly meetings

are held with the

Contractor to discuss

project status, project

delays, issues etc.

strategy

Payment

*The Contract

Administrator meets

with the contractor to

reconcile any

differences and agree

on final quantities.

*The Contract

Administrator

prepares a cost

summary sheet and

payment certificates.

strategy

Customer Service

4

*The City delivers the

notice of construction

to residents 5 days

before starting

construction on any

street.

*3-1-1 intakes all

customer complaints

and allocates them to

the Road Resurfacing

group for review and

action.

strategy

1

Audit Finding 1

Audit Findings 2 & 3 Audit Finding 4 Audit Finding 5

3

5.2-5

Findings and Recommendations:

Stage 1: Planning & Awarding Bid Finding 1: Analyzing the Effectiveness of Competitive Bidding Process

The City issues road resurfacing tenders every year in the spring and the contract is

awarded to the lowest eligible bidder. The competitive bidding process stimulates competition when as many qualified

bidders as possible respond to a tender. The end result is that the City benefits from an increased value for service.

In 2016, there were a total of 69 vendors that were notified of the road resurfacing tender, of which nine could be potential vendors. Six bidders submitted the

completed bid document. Of the six bidders, one bid was disqualified during the evaluation, resulting in five viable bids. The end result was that the road resurfacing

contract T2016-24 was awarded in the amount of $11.06 million (excluding tax).

For the purpose of evaluating the effectiveness of the bidding process, we have

reviewed the data provided by management for the bids submitted in the last five years, 2012-2016.

Note: We did NOT audit the bidding process as part of this audit. The bid data summarized in this report has been provided by management and has not been

verified or validated by us. A. Create a Database to effectively evaluate Bids

Road Resurfacing contracts are repetitive in nature and awarded every year. The City of Brampton adheres to the practice of awarding the contract to the lowest

eligible bidder. Table A below compares the bid price quoted by various bidders between 2012 -

2016. From Table A it is apparent that one bidder was the lowest overall in 8 out of 9 bids. In comparing the overall bids quoted we note that the difference in between the

lowest bidder and the second lowest bidder ranged from 1-7% or $91K - $917K. Given that the difference in overall bid amounts ranged from 1-7% over 9 bids,

reviewing other factors related to the bid as part of the evaluation allows for a more effective bid analysis and provides more information to management.

Priority 2

5.2-6

Table A ( All figures in millions) Bidder 2016 2015 E 2015 W 2014 E 2014 W 2013 E 2013 W 2012 E 2012W

A 12.6 5.86 7.82 6.15 6.98 4.99 4.88 5.09 6.62 B 13.5 6.15 7.72 6.46 7.35 5.24 4.97 5.31 6.93

C - 6.03 - 6.85 - 5.23 - 5.24 -

D 17.3 - - 8.39 9.17 6.25 4.99 5.86 7.39 E 14.3 - - 7.19 8.39 - - 5.29 6.91

F 14.5 - - 6.68 8.16 5.83 5.02 - -

G - - - - 9.37 5.07 5.86 5.52 6.89

H - - - - - 5.82 5.40 - - I - - - - - 5.66 5.79 - -

J - - - 6.71 8.54 5.17 5.84 5.56 7.28

A vs. B (%) 7% 5% -1% 5% 5% 5% 2% 4% 5%

A vs. B ($) .917 .290 -.091 .315 .371 .252 .093 .217 .310

The 2016 contract had a total of 95 line items divided into four parts: Part 1 for road

works, Part 2 for sewer repair, Part 3 for provisional items and Part 4 for watermain looping (performed on behalf of the Region of Peel). The contract contains standard work (Part 1 of the 2016 bid included 40 line items) with some minor additions and

deletions in the other line items. Changes in the contract result in individual line items varying each year, making it difficult to perform complete year over year comparisons

for all line items. Currently there is no centralized database containing information from previous

years. Having information from previous years would allow for data analysis relating to the contract pricing as well as contract quantities. We obtained contract

information for the past five years (2012-2016), created a database of bid information and noted the following:

Price analysis The price quoted in the lowest overall eligible bid is not always the lowest price on a

per line basis. Table B below highlights some specific examples of items from the 2015 Bid submission in which the lowest overall bidder was not necessarily the lowest bidder in all specific line items:

5.2-7

Fair market pricing for standard work line items is not known by management and there are no industry standards for pricing which poses challenges in making appropriate assessments on the bid pricing provided.

Nevertheless, if a centralized database of pricing was reviewed, average pricing

could be determined and may be a tool with which to gauge consistency of bid prices year over year.

We took our database information and calculated the average price per line item for the standard work in the bids over the period 2012-2015 and found over all of the 40

line items an average increase in price of 19%.

Quantity analysis

The bid for the Road Resurfacing contract includes estimated quantities relating to the scope of the work to be performed (refer to Road Resurfacing Process on page 4

for details). There is no process to review estimated versus actual quantities in order to determine significant variances and the reasons for these variances.

If a centralized database of estimated and actual quantities was reviewed, trending of quantities with significant variances could be reviewed and addressed to ensure

increased accuracy of future estimated quantities. Management has indicated that bid prices vary based on a variety of factors; one

factor is the scope of work. Given its effect on bid prices, the accuracy of estimated quantities becomes even more important.

Table C highlights some of the significant differences between the estimated quantity and actual quantity on line items from the 2016 contract. These differences were consistently found in all five years reviewed.

Table B

Contract

Year and region

Line Item

Estimated Qty

Actual Qty

Qty Variance Winning

contractor Price Second lowest

contractor price

2015 East Item A 30 539 509 25.00 43.45

2015 East Item B 15 8 -7 1250.00 766.67

2015 West Item C 400 2025 1625 9.47 2.76

5.2-8

Table C Detail Units Estimated QTY Actual

QTY Difference Difference

(%)

Item D m² 27,800 37,047 9,247 33% Item E m² 20,500 22,491 1,991 10%

Item F m 4,100 5,870 1,770 43%

Item G t 38,690 19,585 (19,105) -49%

Item H m² 264,000 236,219 (27,781) -11%

B. Low number of Bid Submissions:

The local Road Resurfacing Bid is posted online and a notification is sent to all

previous bidders from the prior year as well as all vendors registered with the City of Brampton for the Road Resurfacing contract. Since 2012, we noted that the number

of companies who have submitted bids are significantly lower than the number of companies who have shown an interest in the bid proposal and downloaded the bid package.

Table D

2016 2015 2014 2013 2012

Notifications sent 69 69 38 20 9

Number of companies who picked up documents 6 3 34 13 16

Number of companies that submitted a bid 6 3 8 10 7

Disqualified 1 - - 1 -

*In the year 2017, 12 companies collected the bid package but only 3 submitted completed bid

5.2-9

To understand the decline in bid submissions, we spoke to management and were told the following:

There are preconditions that were added in the contract that would limit the competition to few key players in the market. For example, there is

a clause in the contract that the bidding company should be able to produce 3500 tons of asphalt every day.

There are other qualified contractors who have submitted bids in the past and were no longer bidding for the Road resurfacing contract as

they were not going to be able to compete against the lowest price quoted.

Contractors with plants that are located in close proximity to the City

may reflect their capacity more cost effectively as they are able to produce and supply hot asphalt in a timely manner to various sites in the City.

Recommendations:

A. i) Develop a bid, contract and sub-contracting analysis framework which

includes the development of a multi-year database of information in order to

5.2-10

conduct trending and analysis, including: bids received, bidding patterns, assessment of bid prices and evaluation of estimated quantities against actual quantities.

ii) Significant variances between estimated and actual quantities should be

reviewed and clear explanations as to why the variances could not have been anticipated must be provided. Measurements taken for estimation purposes should be reviewed by management for reasonability.

B. i) Management should review the bid evaluation criteria to determine the appropriateness of using these criteria in awarding contracts.

ii) Management should give due consideration on how to attract different vendors to bid on future Road Resurfacing Contracts.

Management’s Response:

i) Description of Action Plan to address recommendation:

A. i) Agreed that a bid analysis framework should be developed as we have for our large capital projects however award will still be on lowest overall eligible bid. Should unexplainable variances in prices be encountered, management would seek advice from purchasing and legal staff on how to proceed.

A. ii) Agreed that variances should be analyzed to ensure that the explanation for variances are reasonable.

B. Agreed that management will review bid evaluation criteria to attract more bidders but will continue to ensure that the City will be able to keep its

commitment to completing the work in the required time frame. For 2018, the ashphalt tonnage requirement was lowered resulting in 8 bidders for this year’s resurfacing tender.

ii) Department responsible for completion of Action Plan:

Capital Works iii) Completion date of Action Plan:

December 2018 and continue annually

5.2-11

Stage 2: Contract Administration

Finding 2: Strengthening Contract Administration Process

Once the ‘Road Resurfacing Contract’ has been awarded, a working day calendar is prepared by the Contract Administrator which outlines the list of streets with the type

of work assigned, timelines, and details of the subcontractor working on each street. The working day calendar is shared with the City’s road resurfacing staff, the contractors and its subcontractors. This calendar acts as a tracking tool through the

project to ensure that the project is being completed on time and any delays are discussed in bi –weekly project meetings.

In our review of the process we identified the following opportunities:

A. Formalize a Site Inspections Plan

Currently there is no formal inspection plan in place for inspecting project work,

and inspections that do occur are not documented in a consistent manner. There is an opportunity for management to develop a formal inspection plan that supports resurfacing activities by verifying the quality and completeness of the

work in a timely manner. B. Review the Adequacy of Supervision

Management has identified that all concrete and paving work should be supervised all the time. At several times in a contract period, the total number of

streets on which concrete or paving work is performed exceed the current staff available for inspection. This raises a potential concern over the ability to perform

sufficient inspections during all the phases of the contract.

C. Improve Documentation of Site Inspections/Daily Report

The Daily Report is an essential document in construction projects, it should record the number of workers/employees and work equipment at the construction

site, exact time the work began and ended, job progress, the weather conditions and accidents (if any).

The individual inspectors are not required to complete their own daily construction report as required in section 11 of the ‘contract administration of capital project’

procedures. Each inspector is required to take their own notes in their diary and shares the updates with the Contract Administrator. The Contract Administrator prepares a daily report based on the summary of all the notes received by

individual inspectors.

We reviewed a total of 25 daily reports spread across the project timeline, and found them to be complete, however we noted that there are opportunities to improve documentation. The daily reports reviewed did not capture project delays

or issues identified on the site. The project delays or issues are captured in emails, meeting minutes, or discussed over the phone with contractors. As a

Priority 2

5.2-12

result, while supporting evidence would be available, it would be challenging to obtain this in an efficient manner.

Moreover, it was noted that daily reports need to be signed more frequently, preferably on a daily basis.

Figure #: Sample of daily report from 2016 contract

A. Ensure all the Material Testing is Completed

A third party consultant, who is an expert in material design specifications and testing, performs all the material testing on behalf of the City. The City provides direction to the consultant on when to take material testing

samples. The results are processed and submitted to City management for review and action throughout the project.

The description of work should identify if there were any:

- delays - issues noted - change orders - any instructions

to the contractor etc.

5.2-13

For each category of material, there are required material specifications to meet compliance with the Ontario Provincial standards. These

specifications are shared with the third party consultant. Trial batches are tested at the beginning of the contract to ensure that specifications are

met. We noted that the material samples taken throughout the contract were

sufficient and met the required quality specifications. However, we noted that trial batch samples were collected for only a partial amount of the

asphalt mix designs used on the project. All batch trials collected were tested.

In order to ensure that there are no issues with the asphalt quality, City staff should test trial batches of all of the asphalt categories at the

beginning of the project and ensure that the City’s inspector is present at the asphalt plant to ensure that quality is maintained.

In November 2016, Ontario Provincial Standards for Road and Public Works changed one of its specifications (OPSS 1101) which relates to

improving the design specification of material. Management has indicated that they are currently reviewing inclusion of the new specifications.

D. Provide Training to Staff on Site Measurements

There are no formal guidelines available to the inspectors on the appropriate

measurement procedures to be used for different types of work. Every inspector performs their measurements using different tools and methods (i.e. measuring wheel vs. tape measure). This may cause inconsistencies in the

measuring process.

To check the accuracy of measurements, we performed independent measurements and noted that there were small differences. Overall, it was determined that the City did not overpay the Contractor on quantities.

E. Change Order Process

In 2016, there were only five change orders that were executed amounting to $25,771, which is less than the one percent of the 2016 contract. If the value of change orders increases significantly in the future, management may want

to reassess the process of change orders.

Recommendations:

A. Management should develop and formalize an inspection plan to verify

the quality and completeness of assigned work to ensure it meets the contracted or legislated specifications.

B. The inspection plan should ensure all the sites are supervised at all

times and document evidence of inspections performed together with date

stamped photos of individual work locations.

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C. An inspection checklist should be developed outlining key inspection

data or criteria to be documented during each site visit to help improve

completeness of the overall document.

D. To improve quality assurance, management should ensure the completion of all required material testing.

E. Formalize guidelines and training to ensure consistency in performing measurements. There is a potential to automate the process so that

information is captured once in the field, summarized, and available in a timely manner for management review and for payment purposes.



A. Agreed, a formalized inspection plan has been developed to ensure

that inspection staff are best positioned to supervise the right work at the right time for the 2018 construction season. Worksite inspection is primarily

completed with three full time staff and civil engineering students. With the size of the resurfacing increasing year after year, current staffing resources are already stretched. If the number of students is increased, then the

operating budget will need to be revised in future years. A check list of items can be developed to ensure that all the critical items are being observed.

B. Agreed, but again an inspection plan will not necessarily ensure that

all sites are supervised at all times. There may need to be an increase in

operating budget to ensure coverage of all project sites, particularly as our roads age and the resurfacing program grows.

C. Agreed, an inspection checklist has been implemented in 2018 for

each activity.

D. The testing that is currently done is adequate and as noted, with no

concerns. We agree that if we request test batches of each mix, we should obtain them. Having someone at the batching site at all times is not practical and provides little value; with the current staff allocation to the project, utilizing

a staff member at the plant will take away from onsite inspection, which will provide the greater benefit. The preference is to have material testing on site

as is the current practice. The specification has been modified accordingly.

E. Agreed that formalizing measurement processes can be done

although it is noted that the measurements paid were very close to the audit check. We will look into technology to increase efficiencies. We review

alternative technologies to increase efficiencies.

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ii) Department responsible for completion of Action Plan: Capital Works – Construction Section

iii) Completion date of Action Plan: June 2018 and reviewed annually

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Finding 3. Non Compliance to the Road Resurfacing Contract (T2016-024) and Contract Administration Procedures.

A. Contract Administration Procedures

A review of the ‘Contract Administration of the Capital Construction Projects Procedures’ revealed that there are few inconsistencies between the current

practice and the procedures.

The procedures require that pre-construction photos be taken in the

presence of the contractor and Capital Works Inspector. Management informed us that pre-construction photos are taken before the project

begins when the contractor is not present.

Similarly, there are no monthly photos being taken as required by the

current procedures. We understand that the contract administrative procedures were initially written

for Capital Construction Projects and that the resurfacing program was transferred to Capital Works in April 2016. Given that there are differences between capital construction projects and road resurfacing projects, there is a

need to review the current procedures and ensure they are consistent and specific to the road resurfacing project. B. Road Resurfacing Contract (T2016-024)

As part of review of the 2016 contract and other related documents, inconsistencies were noted. Management should consider requiring contractors to provide a list of subcontractors working on the project.

Management has acknowledged the need to revisit their existing contract terms and procedures to ensure consistency between the current practice, procedures

and contract.

Recommendations:

A. Update existing ‘Capital Works Contract Administration procedures’ content to ensure it is consistent with the current practices. The updated procedures

should be able to provide more clarity on the reports that have to be prepared, responsibilities of staff and expectations.

B. The current Road Resurfacing Contract template should be reviewed thoroughly to ensure it contains relevant information.

Priority 3

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A. Agreed. The current procedure for Contract Administration was written for large capital works projects. As Road Resurfacing was not part of the

Capital Works group at the time the procedure was written, there are some minor changes that can be made to account for the different nature of the resurfacing program. Some of those changes have already been made and

the annual review is currently underway and will be in place for the 2018 construction season.

B. Agreed. This was completed for the 2018 tender.


iii) Completion date of Action Plan:

June 2018 and reviewed annually

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Stage 3: Payment Processing

Finding 4. Enhance Review and Oversight over Payment Process

The contract for 2016 included the repaving of 41 streets of varying lengths. City Inspectors monitor the work done by the contractor on each street and collect the

material tickets issued during paving and perform site measurements once the work is completed. Measurements are input into a cost control sheet at month end which generates a progress payment. We noted several opportunities to improve the

process:

A. Quantity Reconciliation between the City & Contractor

The quantity reconciliations between the City’s measurements and the Contractor’s measurements are discussed verbally in regular monthly update

meetings. In the case of a quantity disagreement, re-measurements are performed in order to obtain agreement of the final quantity. We note that there is

lack of documented evidence on quantity reconciliation.

B. Multiple Manual Processes

The payment process includes several manual processes: entering the quantity into individual measurement sheets, transferring the final quantity into a cost

control sheet, reviewing the differences in the cost control sheet and preparing the final payment certificates.

C. Independent Verification of Material Quantity

Measurement tickets are provided by the contractor from their weigh station that shows the actual weight of material that is billed to the City. The City Inspector collects the material tickets and submits them to the Contract Administrator who

enters them into the cost control sheet. The truck is visually inspected to ensure the reasonableness of the quantity. While the current process appears to be

effective, we suggest management assess the feasibility of investing in an independent set of scales which may produce further accuracies in measurement.

Recommendations:

A. Document measurements taken by the City, any variances noted and steps performed to reconcile the differences.

B. Reduce reliance on manual procedures in the payment process that may be prone to input error by investing in technology to automate the process to

increase potential efficiencies.

C. Consider establishing a method of independent verification of truck weight to

ensure the accuracy of material weight.

Priority 2

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Management’s Response: i) Description of Action Plan to address recommendation:

A. Agreed, process of reconciliation is to be documented. All

discrepancies are documented in emails until resolution.

B. Technology can be reviewed and if required funding included in a future

budget request.

C. The City does not currently own a weight scale. However, staff will review if there is a weigh scale nearby to utilize for this purpose.


iii) Completion date of Action Plan:

December 2018

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Stage 4: Customer Service

Finding 5. Building a Positive Customer Experience Process A. Review Existing Service Request Process and Customer Complaint

Database

In 2016, the City received 354 complaints relating to the Road Resurfacing Contract which started in May and ended in November 2016. The City records all

complaints received in their ‘Infor Public Sector’ System. When a complaint is logged in the system it is assigned to an inspector to take appropriate action. Although there are no formally documented Service Level Agreement procedures

for handling the customer complaint process, we noted that the majority of the complaints are being handled in an effective and timely manner.

The ‘Infor Public System’ captures all of the details of the complaints including notes on the action plan. Currently this database is used only to notify the

concerned department and technician about a particular issue and the resolution is documented in the system. Management does not perform any post evaluation analysis on the complaint database.

A detailed analysis of the database revealed that of the 345 complaints received

in 2016, 60% of the complaints pertained to several types of damages caused due to construction, 15% pertained to grass damage, 15% pertained to general inquiry and the remaining 10 % of the complaints related to unsafe conditions.

Figure 1 : Analysis of Service Request by Category

Priority 3

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B. Notice of Construction

A ‘Notice of Construction’ is issued to each house which is impacted by the Road Resurfacing Program. The notice is hand delivered to each house on the street at

least 5 days before the work is expected to commence. The purpose of the notice is to inform the resident about the road resurfacing work that is planned on the

street and potential interruptions that residents may face. A review of Notices from other municipalities identified improvements to be considered in the current Notice of Construction:

The expected start date and expected completion date should be indicated

on the Notice. This will result in better communication with the residents in regards to timelines and expected duration of work.

The Notice should indicate the type of disruptions that might be experienced, such as, noise, dust, vibration and other inconveniences.

To prevent potential miscommunication and misunderstanding between the

City and residents, it is recommended that the Notice include a disclaimer indicating that additional work on private property is not the responsibility of the City.

We noted that management has already implemented some changes in the new

2017 Notice of Construction. Recommendations:

A. Increase oversight over the service request database to ensure that the

complaints are recorded accurately and a post evaluation assessment is performed at the end of the contract. In the post evaluation assessment, management should review all of the categories of complaints to be proactive

in managing customer expectations moving forward.

B. Review and improve the Notice of Construction template to provide further detailed information to the residents affected by construction. An annual review of the Notice should be performed.



A. Agreed that a post evaluation of the complaints should be conducted to see if there are trends or consistent issues that need to be addressed.

Management is currently in discussions with Service Brampton to see if there are any improvements to be gained through the service request process.

B. Changes have already been made to the Notice of Construction as noted. While the notices do go out to the upcoming streets in a timely manner

to give residents enough notice, there are too many variables to take into account to provide a firm start and finish date. We would recommend a

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general notice to start at the beginning of the season and then send a follow up notice indicating that construction work is to start in 5 days. We will continue to do an annual review of the construction notice.

ii) Department responsible for completion of Action Plan:

Capital Works – Construction Section iii) Completion date of Action Plan:

December 2018 and at the end of every resurfacing contract

Conclusion:

The objective of this audit was to assess whether processes, procedures and controls related to the Road Resurfacing program were adequately and appropriately designed and operating effectively. Based on our audit work, we found that increased

oversight in the Road Resurfacing program is needed: a centralized database is required to effectively review bids and conduct post evaluation analysis; contract

administration process will be strengthened by formalizing site inspection plans, staff training, material testing and increasing documentation standards; road resurfacing contract and contract administration procedures should be updated to reflect current

practices; manual processes should be reviewed for automation; and a continuous improvement model should be utilized for enhanced customer service.

Given the public’s reliance on Brampton’s infrastructure and the anticipated growth in Brampton’s population, ensuring sufficient oversight over the Road Resurfacing

program is a necessity.

Appendices:

Appendix A: Criteria for Audit Report Rating Appendix B: Criteria for Evaluating Audit Findings

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Appendix A: Criteria for Audit Report Rating

Effective

- Key controls are adequately and appropriately designed, and are operating effectively to support objectives and manage risks.

- Audit recommendations resulted in only minor enhancements to the effectiveness or efficiency of controls and processes.

- One or more Priority 3 findings.

- Insignificant cumulative financial impact when all audit findings have been considered.

- Audit findings would not be subject to a follow-up by Internal Audit.

Enhancement Required

- A few key control weaknesses were noted that require enhancements to better support objectives and manage risks.

- One Priority 2 finding and Priority 3 findings.

- Priority 3 findings only where the cumulative financial impact is significant.

- Corrective action and oversight by management is needed.

- Audit findings could be subject to a follow-up by Internal Audit.

Significant

Improvement Required

- Numerous key control weaknesses were noted that require significant improvement to support objectives and manage risks.

- One Priority 1 finding, or more than one Priority 2 findings and Priority 3 findings.

- Priority 2 and 3 findings only where the cumulative financial impact is significant.

- Corrective action and oversight by senior management is required.

- Audit findings will be subject to a follow-up by Internal Audit.

Immediate

Action Required

- Key controls are either not adequately or appropriately designed and are not operating effectively, or there is an absence of appropriate key controls to support objectives and manage risks.

- More than one Priority 1 finding, combined with Priority 2 or 3 findings.

- Regardless of the type of findings, the cumulative financial impact is material to the City's financial statements.

- Confirmed fraud by management or staff.

- Corrective action and oversight by Corporate Leadership Team is required immediately.

- Follow-up of such audit findings by Internal Audit would be of high priority.

The audit report rating is intended to provide management with an indication of the overall status of internal controls and processes in the audited area. The audit report rating is based on Internal Audit's overall assessment of the significance of issues identified during the audit process, and in conjunction with professional judgement also considers the following:

1. Design and effectiveness of internal controls, processes, procedures, policies, and systems. 2. Compliance with policies, standard operating procedures, and other requirements (i.e. legal,

regulatory, accounting, contractual). 3. Quality of the data and information provided by management and related systems. 4. Efficiency of systems, processes and procedures.

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Appendix B: Criteria for Evaluating Audit Findings

Priority 1 (P1)

One or more of the following conditions exist that require immediate attention of the Corporate Leadership Team. Corrective actions by senior management must be implemented.

Priority 2 (P2)

One or more of the following conditions exist that require attention by senior management. Corrective actions by management should be implemented.

Priority 3 (P3)

One or more of the following conditions exist that require attention by management. Corrective actions by management should be implemented.

- Financial impact of both actual and potential losses is material.

- Management's actions, or lack thereof, have resulted in the compromise of a key process or control, which requires immediate significant efforts and/or resources (including time, financial commitments, etc.) to mitigate associated risks. Failure by management to remedy such deficiencies on a timely basis will result in the City being exposed to immediate risks and/or financial loss.

- One or more of the following conditions is true: i) management failed to identify key risks; ii) management failed to implement processes and controls to mitigate key risks.

- Management's actions, or lack thereof, have resulted in a key initiative to be significantly impacted or delayed, and the financial support for such initiative will likely be compromised.

- Management failed to implement effective control environment or provide adequate oversight, resulting in a negative pervasive impact on the City or potential fraudulent acts by City staff.

- Fraud by management or staff, as defined by the Corporate Fraud Prevention Policy (policy 2.14).

- Financial impact of both actual and potential losses is significant.

- Management's actions, or lack thereof, may result in a key process or control to be compromised, which requires considerable efforts and/or resources (including time, financial commitments, etc.) to mitigate associated risks.

- Management correctly identified key risks and have implemented processes and controls to mitigate such risks, however, one or more of the following is true: i) the processes and controls are not appropriate or adequate in design; ii) the processes and controls are not operating effectively on a consistent basis.

- Management's actions, or lack thereof, have impacted or delayed a key initiative, and the funding for such initiative may be compromised.

- Management failed to provide effective control environment or oversight on a consistent basis, resulting in a negative impact on the respective division, or other departments.

- Management failed to comply with Council-approved policies, by-laws, regulatory requirements, etc., which may result in penalties.

- Management failed to identify or remedy key control deficiencies that may impact the effectiveness of anti-fraud programs.

- Financial impact of both actual and potential losses is insignificant.

- A non-key process or control if compromised may require some efforts and/or resources (including time, financial commitments, etc.) to mitigate associated risks.

- Processes and controls to mitigate risks are in place; however, opportunities exist to further enhance the effectiveness or efficiency of such processes and controls. Management oversight exists to ensure key processes and controls are operating effectively.

- Minimal risk of non-compliance to Council-approved policies, by-laws, regulatory requirements, etc.

- Low impact to the City's strategic or key initiative.

- Low impact to the City's operations.

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Report Audit Committee

The Corporation of the City of Brampton 2018-05-22

Date: May 11, 2018

Subject: 2017 Audited Consolidated Financial Statements for the City of Brampton

Contact: David Sutton, Treasurer

905-874-2257

Recommendations:

1. That the report dated May 11, 2018 from Maja Kuzmanov, Manager of

Accounting, Corporate Services Department to the Audit Committee meeting of May 22, 2018, re: 2017 Audited Consolidated Financial Statements for the City of Brampton, be received.

OVERVIEW:

The 2017 Audited Consolidated Financial Statements from the City Auditor KPMG

LLP Chartered Accountants are being presented to the Audit Committee for receipt and approval.

The consolidated financial statements have been prepared in accordance with the Public Sector Accounting Board (PSAB) reporting standards and fully comply with Generally Accepted Accounting Principles (GAAP).

These consolidated financial statements reflect the financial position as at December 31, 2017 and the operating results for the year for the City, its Local

Boards and Committees of Council including The Brampton Public Library Board and the Downtown Brampton Business Improvement Area.

The financial reporting standards do not change the City’s budgeting process, how the tax levy is calculated or how funding decisions are made by Council.

A reconciliation of the operating results for tax levy purposes and PSAB adjusted

consolidated financial statements is provided in Schedule A of this report.

As part of the annual audit, the City Auditor, KPMGLLP Chartered Accountants,

conducted a review of Internal Controls and provides an Audit Findings Report to the Audit Committee with recommendations for improvement and accompanying

management responses.

KPMGLLP did not identify any corrected or uncorrected misstatements.

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BACKGROUND

The audit of the 2017 Consolidated Financial Statements by the City Auditor, KPMGLLP

Chartered Accountants is complete and the statements are attached to this report. The work KPMGLLP performed is conducted in accordance with Canadian Generally Accepted Auditing Standards (GAAP) and relevant ethical requirements, including those

pertaining to independence. The work is also planned and performed to obtain reasonable assurance about whether the consolidated financial statements as a whole

are free from material misstatement, whether due to fraud or error.

The 2017 Audited Consolidated Financial Statements for the City of Brampton reflect the financial position as at December 31, 2017 and the results of operations for the year for the City and its Local Boards and Committees of Council. The following Local

Boards and Committees of Council which are included in these consolidated financial statements are accountable for the administration of their financial affairs and resources

to the City and are owned or controlled by the City:

The Brampton Public Library Board

Downtown Brampton Business Improvement Area (DBBIA)

The consolidated financial statements for the 2017 fiscal year have been prepared in compliance with the requirements of the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada as required by the Province of Ontario.

The statements are presented to the Audit Committee for review and approval, which are part of the key statutory functions of the Audit Committee. CURRENT SITUATION

Audit Results

KPMGLLP audited the consolidated financial statements of the City for the fiscal year 2017. These consolidated financial statements are the responsibility of the City’s management. The audit resulted in KPMGLLP issuing an unqualified audit opinion,

which means that the consolidated financial statements present fairly the financial position and comply with PSAB municipal financial reporting requirements.

Report Summary

The consolidated financial statements presented in this report comprise the following statements:

Consolidated Statement of Financial Position Consolidated Statement of Operations and Accumulated Surplus

Consolidated Statement of Cash Flows, and

Consolidated Statement of Change in Net Financial Assets

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The consolidated financial statements provide information on the City’s financial position

including the value of assets and liabilities, cost of delivering the City’s municipal services and investment in capital projects, financing sources and investing activities.

The City of Brampton’s consolidated financial statements are prepared in accordance with Canadian public sector accounting standards established by the PSAB of the

Chartered Professional Accountants of Canada. The PSAB requires full accrual basis of accounting and financial reporting. This provides for inclusion of certain items such

as amortization of tangible capital assets and tangible capital assets contributed to the City through the subdivision assumption process.

The City uses a full accrual basis (PSAB) budgeting methodology. This methodology does not change how the tax levy is calculated, or how funding decisions are made by

City Council. The 2017 Audited Consolidated Financial Statements reflects full accrual budget figures for comparison purposes.

Schedule “A” attached shows the 2017 fiscal year tax-based operating results versus that of the PSAB based financial reporting. Highlights of 2017 Consolidated Financial Statements:

Consolidated Statement of Financial Position

The Consolidated Statement of Financial Position (balance sheet) has two key components that make up accumulated surplus: net financial assets and non-financial

assets (tangible capital assets, inventory and prepaid expenses).

“Net Financial Assets” is the net of assets (cash, investments, receivables and

other assets) minus liabilities (accounts payable, capital lease obligation, deferred revenues and employee benefits and other liabilities) generated from the City’s operations, activities of capital projects and Reserves and Reserve

Funds. This value serves as a key indicator of the City’s ability to manage its cash resources to meet its financial obligations. The City’s 2017 net financial

assets had a balance of $429.2 million (2016 - $408.4 million), an increase of $20.8 million from 2016. An increase in Net Financial Assets is primarily attributable to decrease in deferred revenue and accounts payable.

“Non-Financial Assets” primarily consists of the City’s investment in tangible

capital assets of $3.69 billion (2016 - $3.60 billion). The increase in tangible capital assets is attributable to the combination of assets constructed by the City and brought into service and assets contributed to the City through the

subdivision assumption process.

The accumulated surplus (retained earnings) as at December 31, 2017 is $4.12 billion (2016 - $4.01 billion), an increase of $110.0 million.

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Key items to note:

Decrease in cash and short-term investment balance

o While Bank of Canada had two interest rate hikes in 2017 (each of 25

basis points) after almost two years of no rate change, the short-term interest rate still remains near historical lows. In 2017, the City has

increased the allocation for longer-term investments to improve the overall earnings while ensuring a prudent amount of liquidity was maintained to meet the cash flow requirements for operating and capital needs. This has

caused the decrease of year-end cash and GIC balances and increase of bond portfolio balances. Result was a decrease from $425.8 million in

2016 to $348.8 million in 2017.

Increase in accounts receivable

o From $29.1 million in 2016 to $35.5 million in 2017 was primarily

attributable to receivables from the Province for POA fines and School Boards for additional Appeals and Apportionment on the tax bills.

Increase in taxes receivable

o From $41.3 million in 2016 to $48.7 million in 2017 was attributable to the

additional supplementary assessment information received from Municipal Property Assessment Corporation (“MPAC”) in October, billed in 2017 with the last installment due in 2018.

City Hall West Tower Capital Lease Obligation

o In 2014, the City entered into a capital lease arrangement for City Hall West Tower. The lease value has been recorded in the City’s

consolidated financial statements as a tangible capital asset (TCA) with a corresponding capital lease obligation with remaining balance of $88.6

million as at December 31, 2017.

Deferred Revenue - Obligatory Reserve Funds

o Any unspent development charges (DCs), gas tax funds and other obligatory reserves at the end of the fiscal year are recorded as deferred

revenue. Deferred revenue decreased by $16.6 million from $323.3 in 2016 to $306.7 in 2017 caused by timing of project spending.

Employee Benefits and Other Liabilities

o Employee benefits and other liabilities increased from $72.8 million in 2016 to $77.1 million in 2017 mainly due to increase in actuarial

valuations for vested sick leave, WSIB liability and early retirement liability.

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Net Book Value of Tangible Capital Assets

o An increase of $89.2 million due to the infrastructure assets assumed from developers through subdivision agreements, construction of the Williams

Parkway Administrative Building Phase 2, New Springdale Library and Neighborhood Park, Sandalwood Works Yard expansion, purchase of transit buses and road construction activities.

The Net Financial Assets position continues to be in a strong, positive position, which

signifies that the City is fully able to meet its financial obligations.

Consolidated Statement of Operations and Accumulated Surplus

The Consolidated Statement of Operations and Accumulated Surplus (income statement) presents the sources and uses of City’s operating financial resources

recognized in the reporting period. Accumulated Surplus represents the City’s equity (equivalent to retained earnings of a

private business). 89% of the City’s Accumulated Surplus represents the City’s investment (net book value) in tangible capital assets required to deliver municipal

services. The remainder of the Accumulated Surplus consists of funds committed for capital projects, reserves and reserve funds. Accumulated Surplus is therefore not available to be used to moderate the annual tax levy since it would require selling City

assets that are used to deliver municipal services.

Revenues:

Total revenues in 2017 were $49.7 million higher than 2016 increasing from $779.6 to

$829.3 million. Major factors contributing to this increase include:

The higher number of subdivisions assumed during 2017 over 2016 from developers resulted in a $25.9 million increase in the Developer contributed

tangible capital assets.

o $25.0 million increase in property taxation as a result of assessment growth and

budgetary increases. The majority of the growth is realized from new construction, particularly residential, and new plans of subdivision. Also contributing to the increase is the increased supplementary assessment received

from MPAC.

o Increase in Transit revenues associated with 18% ridership growth.

Expenses:

Total operating expenses in 2017 were $15.2 million lower than 2016, decreasing from

$734.0 million to $718.8 million. This decrease was partially offset by $4.6 million increase in amortization (depreciation) expense representing the value of tangible

capital assets that were consumed during the year. The amortization expense

6.1-5

increased due to the $220.3 million in new tangible capital assets that were added

during 2017. Amortization expenses are non-cash in nature, meaning that there was no outlay of cash resources related to the expense.

Following are key items driving the operating expense variance from 2016 to 2017:

o Favorable:

One-time payment of $40 million to the Peel Memorial Centre for Integrated Health and Wellness in 2016

One-time costs associated with the City transformation in 2016

o Unfavorable:

$4 million increase in post-employment benefits and other liabilities

Increase in diesel fuel rates

Increases from the operating and maintenance of the City’s growing

infrastructure investment as well as continued growth in transit service

Consolidated Statement of Cash Flows

The Consolidated Statement of Cash Flows reports changes in cash and cash

equivalents. It provides information on how the City uses its cash for operating, investing and financing activities. As at December 31, 2017 the City’s cash and cash

equivalents had a balance of $348.8 million (2016 - $425.8 million). The decrease of $77.0 million was mainly driven by the net change in cash generated from operations that was partially offset by an increase in cash outlays related to the acquisition of

tangible capital assets.

Consolidated Statement of Change in Net Financial Assets

This statement explains the change in the City’s Accumulated Surplus during the year. It is intended to provide the reader of the consolidated financial statements with detailed information on non-financial assets including the acquisition of tangible capital assets

and the use of the assets through the value of amortization. This statement also provides reporting of other non-financial asset items that impact the change in annual

surplus and the change in net financial assets. Audit Findings Report

Each year as part of the annual audit, the City Auditor, KPMGLLP Chartered

Accountants, conducts a review of Internal Controls and provides an Audit Findings Report to the Audit Committee with recommendations for improvement and accompanying management responses.

The 2017 Audit Findings Report from KPMGLLP Chartered Accountants is attached to

this report. KPMGLLP did not identify any corrected or uncorrected misstatements.

6.1-6

Publication

The 2017 Consolidated Financial Statements will be made public and posted on the

City’s website.

Corporate Implications:

There are no corporate implications resulting from this report. Strategic Plan:

This report achieves the Strategic Plan priority of Good Government by practicing

proactive, effective and responsible management of finances, policies and service delivery and promotes transparency in the reporting of the City’s financial affairs. Conclusion:

KPMGLLP audited the consolidated financial statements of the City for the fiscal year 2017. These consolidated financial statements are the responsibility of the City’s management. The audit resulted in KPMGLLP issuing an unqualified audit opinion,

which means that the consolidated financial statements present fairly the financial position and comply with PSAB municipal financial reporting requirements.

KPMGLLP Chartered Accountants also conducted a review of Internal Controls and provides an Audit Findings Report to the Audit Committee with recommendations for

improvement. KPMGLLP did not identify any corrected or uncorrected misstatements.

Approved by:

David Sutton, Treasurer Joe Pittari, Commissioner,

Corporate Services

Attachments:

2017 Independent Auditors’ Report – The Corporation of the City of Brampton

2017 Audited Financial Statements – The Corporation of the City of Brampton

2017 Independent Auditors’ Report – Trust Funds

2017 Audited Financial Statements – Trust Funds

Audit Findings Report (for the year ended December 31, 2017)

Management Representation Letter

Schedule A - 2017 Municipal Surplus Reconciliations, Tax Levy Purpose vs

Financial Statements

Authored by: Maja Kuzmanov, Manager of Accounting

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The Corporation of

The City of Brampton

Audit Findings Report For the year ended December 31, 2017

May 2018

kpmg.ca/audit

6.1-35

The Corporation of the City of Brampton Audit Findings Report for the year ended December 31, 2017 2

Table of Contents Executive summary 3

Technology in the audit 4

Other matters 5

Adjustments and differences 6

Process Improvement Points 7

Appendices 8

The contacts at KPMG in connection with this report are: Kevin Travers Lead Audit Engagement Partner Tel: 416-228-7994 [email protected] Ana Chan Audit Senior Manager Tel: 416-224-4655 [email protected]

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*This Audit Findings Report should not be used for any other purpose or by anyone other than the Audit Committee. KPMG shall have no responsibility or liability for loss or damages or claims, if any, to or by any third party as this Audit Findings Report has not been prepared for, and is not intended for, and should not be used by, any third party or for any other purpose.

Executive summary Purpose of this report* The purpose of this Audit Findings Report is to assist you, as a member of the Audit Committee, in your review of the results of our audit of the consolidated financial statements (the “financial statements”) of the City of Brampton (the “City”) as at and for the year ended December 31, 2017. This Audit Findings Report builds on the Audit Plan we presented to the Audit Committee on November 20, 2017.

Changes from the Audit Plan

We have re-assessed the materiality figure from $19.488 million (planning materiality) to $18.74 million based on total revenue adjusted for contributed tangible capital assets. There have been no other significant changes regarding our audit from the Audit Planning Report previously presented to you.

Adjustments and differences We did not identify any adjustments that were communicated to management and subsequently corrected in the financial statements.

Finalizing the audit As of date of this report, we have completed the audit of the financial statements and received evidence of approval of the financial statements from the City’s Chief Administrative Officer (individual delegated authority to approve the financial statements).

Our audit report is dated the date of approval of the financial statements by the City’s Chief Administrative Officer, May 8, 2018.

Control and other observations We did not identify any control deficiencies that we determined to be significant deficiencies in ICFR.

Critical accounting estimates Overall, we are satisfied with the reasonability of critical accounting estimates. The critical areas of estimates relate to allowance for doubtful accounts for accounts receivable and tax receivables, carrying value of tangible capital assets, provisions for accrued liabilities and obligations related to employee future benefits.

Other matters We have highlighted other significant matters that we would like to bring to your attention.

See page 5.

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Technology in the audit

As previously communicated in our Audit Planning Report, we have utilized Data & Analytics (D&A) and other technologies in order to enhance the quality and effectiveness of the audit. We have summarized the areas of focus as follows:

Areas of focus D&A tools and routines Our results and insights Journal entry testing

• We utilized data analytics in the audit to evaluate the completeness of the journal entry population through a roll-forward of selected cash, accounts receivable, tangible capital assets, and revenue and reserve G/L accounts. This consists of a summation of all automated and manual journal entries posted in the selected G/L accounts during the fiscal year and comparison of the calculated amounts to the account balances as at and for the year ended December 31, 2017 as reported by management.

• Using technology in the audit to analyze journal entries and apply certain criteria to identify potential high-risk journal entries for further testing.

• We noted no issues with respect to the completeness of the journal entry population.

• We are satisfied with the results of our testing of specific relevant journal entries, which were identified for testing using computer assisted auditing techniques (CAATs).

Tangible Capital Assets

• We utilized CAATs to perform testing on amortization expense recorded for the fiscal year based on each individual asset in the asset subledger. This consists of recalculating the expected amortization expense for each asset based on its useful life and number of days in use during the year, and comparing to the total amortization expense recorded in the G/L.

• We also used CAATs to identify individual assets from the asset subledger that have a greater accumulated amortization than original cost balance.

• Based on the data analytics performed, we did not identify any significant discrepancies or audit adjustments.

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Other matters

Professional standards require us to communicate to the Audit Committee Other Matters, such as material inconsistencies or material misstatements between MD&A and the audited financial statements, identified fraud or non-compliance with laws and regulations, consultations with other accountants, significant matters relating to the City’s related parties, significant difficulties encountered during the audit, and disagreements with management. We have highlighted below other significant matters that we would like to bring to your attention:

Matter KPMG comment Employee Future Benefits • In 2017, management engaged an external actuarial consultant to undertake a valuation of the City’s non-pension retirement

benefits and accumulated sick leave liability as at December 31, 2016. A valuation update was performed to determine the liability as reported in the City’s 2017 financial statements. The employee future benefit liabilities as at December 31, 2017 are outlined in Note 7 to the financial statements.

• We reviewed the actuarial valuation report and assumptions applied in the valuation, and performed trend analysis on the liability.

• The Canadian auditing standards require that we review the qualifications, competence and objectivity of the preparer of the estimate.

• We performed substantive testing to validate accuracy of the census data submitted by the City to the actuary to perform the valuation.

• Based on the analysis and testing performed, we did not identify any discrepancies.

Contingent Liabilities • The Chartered Professional Accountants Handbook PS3300 Contingent Liabilities requires that the City recognize a liability when “it is likely that a future event will confirm that a liability has been incurred at the date of the financial statements; and the amount can be reasonably estimated.”

• At any point in time, the City is subject to a number of matters which could potentially result in the determination of a contingent liability as defined above, including, but not limited to matters such as collectibiltiy of certain accounts receivable, legal claims, etc.

• We reviewed the City’s assessments of contingent liabilities and the process employed to develop and record the related estimated liabilities. Where applicable, KPMG discussed with the individuals responsible for the process and is satisfied that the methodology used is rational, consistent with the approach taken in prior years and has been appropriately reviewed. As these items are resolved, it is possible that the final amounts recorded for these liabilities may change, however the amounts currently recorded represent management’s best estimates of exposure given the information presently available.

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Adjustments and differences

Adjustments and differences identified during the audit have been categorized as “Corrected adjustments” or “Uncorrected differences”. These include disclosure adjustments and differences. Professional standards require that we request of management and the audit committee that all identified differences be corrected. We have already made this request of management.

Corrected adjustments We did not identify any adjustments that were communicated to management and subsequently corrected in the financial statements.

Uncorrected differences We did not identify differences that remain uncorrected.

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Process Improvement Points As part of the audit process, we communicate opportunities for improvements in financial or operational processes or controls should we become aware of them during our audit. We performed an update for process improvement points identified in the prior year audit.

Update on prior year process improvement points: Description of matter Potential effect and recommendation

We noted that certain period costs were inappropriately capitalized as assumed TCA.

The inappropriate capitalization resulted in an overstatement in TCA, revenue from developer contributed TCA, and amortization expense for 2016. We recommended that management continue to work with other departments to obtain the necessary information on period costs and capital expenditures such that the appropriate TCA amount is capitalized. Current year update: this recommendation has been implemented in the current year.

We noted a discrepancy in our testing related to the completeness of restructuring liability as at December 31, 2016 as a result of improper cut-off that was not applied as at year-end.

We recommended that management implement more formal policies and procedures surrounding cut-off of non-routine liabilities such that transactions can be recorded in the proper reporting period. Current year update: A Standard Operating Procedure was formulated by the Finance team and implemented as at December 31, 2017. The document outlines the process for accrual estimation in relation to restructuring costs.

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Appendices Appendix 1: Required communications

Appendix 2: Audit Quality and Risk Management

Appendix 3: Background and professional standards

Appendix 4: Audit trends

Appendix 5: Management representation letter

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Appendix 1: Required communications In accordance with professional standards, there are a number of communications that are required during the course of and upon completion of our audit. These include: – Auditors’ report – the conclusion of our audit is set out in our draft auditors’

report – Management representation letter – In accordance with professional

standards, copies of the management representation letter are provided to the Audit Committee.

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Appendix 2: Audit Quality and Risk Management KPMG maintains a system of quality control designed to reflect our drive and determination to deliver independent, unbiased advice and opinions, and also meet the requirements of Canadian professional standards. Quality control is fundamental to our business and is the responsibility of every partner and employee. The following diagram summarises the six key elements of our quality control systems. Visit our Audit Quality Resources page for more information including access to our audit quality report, Audit quality: Our hands-on process.

Independence, integrity, ethics and objectivity

Personnel management

Acceptance & continuance of

clients / engagements

Engagement performance

standards

Independent monitoring

Other risk management

quality controls

– Other controls include:

– Before the firm issues its audit report, the Engagement Quality Control Reviewer reviews the appropriateness of key elements of publicly listed client audits.

– Technical department and specialist resources provide real-time support to audit teams in the field.

– We conduct regular reviews of engagements and partners. Review teams are independent and the work of every audit partner is reviewed at least once every three years.

– We have policies and guidance to ensure that work performed by engagement personnel meets applicable professional standards, regulatory requirements and the firm’s standards of quality.

– All KPMG partners and staff are required to act with integrity and objectivity and comply with applicable laws, regulations and professional standards at all times.

– We do not offer services that would impair our independence.

– The processes we employ to help retain and develop people include: – Assignment based on skills and

experience; – Rotation of partners; – Performance evaluation; – Development and training; and – Appropriate supervision and

coaching.

– We have policies and procedures for deciding whether to accept or continue a client relationship or to perform a specific engagement for that client.

– Existing audit relationships are reviewed annually and evaluated to identify instances where we should discontinue our professional association with the client.

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https://home.kpmg.com/ca/en/home/services/audit/audit-quality-resources.html

https://home.kpmg.com/content/dam/kpmg/ca/pdf/2018/01/kpmg-2017-audit-quality-en.pdf


Appendix 3: Background and professional standards Internal control over financial reporting As your auditors, we are required to obtain an understanding of internal control over financial reporting (ICFR) relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the financial statements, but not for the purpose of expressing an opinion on internal control. Accordingly, we do not express an opinion on the effectiveness of internal control. Our understanding of ICFR was for the limited purpose described above and was not designed to identify all control deficiencies that might be significant deficiencies and therefore, there can be no assurance that all significant deficiencies and other control deficiencies have been identified. Our awareness of control deficiencies varies with each audit and is influenced by the nature, timing, and extent of audit procedures performed, as well as other factors. The control deficiencies communicated to you are limited to those control deficiencies that we identified during the audit.

Documents containing or referring to the audited financial statements We are required by our professional standards to read only documents containing or referring to audited financial statements and our related auditors’ report that are available through to the date of our auditors’ report. The objective of reading these documents through to the date of our auditors’ report is to identify material inconsistencies, if any, between the audited financial statements and the other information. We also have certain responsibilities, if on reading the other information for the purpose of identifying material inconsistencies, we become aware of an apparent material misstatement of fact. We are also required by our professional standards when the financial statements are translated into another language to consider whether each version, available through to the date of our auditors’ report, contains the same information and carries the same meaning.

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The Corporation of the City of Brampton Audit Findings Report for the year ended December 31, 2017 | 12

Appendix 4: Audit trends KPMG understands the wide range of challenges and evolving trends that you face as an audit committee of the City. We also understand that sometimes keeping up with critical issues as they emerge can be difficult. As your auditors, it is incumbent upon us to provide you with any information that will help you further strengthen corporate governance, enhance your oversight and add greater value within your organization. As such, KPMG's Audit Committee Institute (ACI) provides information, resources and opportunities for you to share knowledge with your peers. First, you are welcome to attend our Audit Committee Roundtable sessions, which are held in major cities across the country. In addition, you will also benefit from our monthly article series (Audit Point of View) and quarterly videos (FrontPage Video Series) that focus on the most pressing audit committee agenda items. More information on all of these can easily be found at www.kpmg.ca/audit. Our discussions with you, our audit opinion and what KPMG is seeing in the marketplace—both from an audit and industry perspective—indicate the following is specific information that will be of particular interest to the City. We would, of course, be happy to further discuss this information with you at your convenience.

Thought Leadership Overview

Benchmarking City Services This city benchmarking report examines the performance of city services around the world to uncover insights and help create real value. https://home.kpmg.com/xx/en/home/insights/2017/09/finding-the-courage-to-improve-benchmarking-city-services.html

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http://www.kpmg.ca/auditcommittee

https://home.kpmg.com/ca/en/home/insights/2016/04/audit-point-of-view.html

https://home.kpmg.com/ca/en/home/insights/2016/04/audit-point-of-view.html

https://home.kpmg.com/ca/en/home/services/audit/frontpage-video-series.html

http://www.kpmg.ca/audit

https://home.kpmg.com/xx/en/home/insights/2017/09/finding-the-courage-to-improve-benchmarking-city-services.html


Appendix 5: Management representation letter

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KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”).

KPMG member firms around the world have 174,000 professionals, in 155 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

© 2017 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

kpmg.ca/audit

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Schedule A

The Corporation of the City of Brampton

2017 Municipal Surplus Reconciliation, Tax Levy purposes vs Consolidated Financial Statements ('000)

2017 2016

Net Operating Surplus (Deficit) as at December 31 23,800 1,247

Less: Return of operating surplus to Reserves and Reserve Funds 23,800 1,247

Surplus per CityWide Operating Summary, December 31 ( for tax levy purposes) -$ -$

Add: Net interfund transfer eliminated in consolidation 79,778 20,021

Add: Grants/subsidies and other revenue received directly by Capital projects 13,319 11,647

Add: Interest earned on reserves and reserve funds not included in the City's operating budget for tax levy purposes 11,755 9,286

Add: DC revenues recognized during the year for project funding 133,174 145,597

Add: Developers contributed assets recognized as municipal equity 55,834 29,856

Less: PSAB adjustments re employee post retirement benefits and other legal liabilities 3,873 4,474

Less: Expenses charged to Capital projects are reclassified as operating in nature 49,656 40,523

Less: Amortization expense 130,611 125,971

Less: Net cost of tangible capital assets disposed 576 350

Total municipal surplus before consolidation 109,144 45,089

Consolidated entities surplus ( net of consolidated eliminations, including the Library, BIA etc.): 1,350 443

Total annual surplus per Consolidated Statement of Operations , December 31 110,494$ 45,532$

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